Question

Perdon Corporation manufactures safes—large mobile safes, and large walk-in stationary bank safes. As part of its annual budgeting process, Perdon is analyzing the profitability of its two products. Part of this analysis involves estimating the amount of overhead to be allocated to each product line. The information shown below relates to overhead.

		Mobile Safes		Walk-in Safes
Units planned for production		200		50
Material moves per product line		300		200
Purchase orders per product line		450		350
Direct labor hours per product line		800		1,700

(a)

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The total estimated manufacturing overhead was $264,000. Under traditional costing (which assigns overhead on the basis of direct labor hours), what amount of manufacturing overhead costs are assigned to: (Round answers to 2 decimal places, e.g. 12.25.)

(1)		One mobile safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit
(2)		One walk-in safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit

Answer 1

As the overheads are allocated on the basis of direct hour labors, we will first need to calculate the total labor hours used.

Total Direct Labor Hours used by both the lines = 800 hours + 1700 hours = 2,500 hours

(1) Amount of Manufacturing overhead costs allocated to Mobile safe = Total Overheads * Direct labor hours used/ Total Direct labor hours used

Manufacturing overhead costs allocated to Mobile safe = $264,000*800/2,500 = $84,480

Manufacturing overhead costs allocated to Mobile safe per unit = $84,480 / 200 units = $422.40 per unit.

(2) Amount of Manufacturing overhead costs allocated to Walk in safe = Total Overheads * Direct labor hours used/ Total Direct labor hours used

Manufacturing overhead costs allocated to Walk in safe = $264,000*1,700/2,500 = $179,520

Manufacturing overhead costs allocated to Walk in safe per unit = $179,520 / 50 units = $3,590.40 per unit.