Options for overhead cost allocations (ABC)
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Wilkins Corporation manufactures safes-large mobile safes and large walk-in stationary bank safes. As part of its annual budgeting process, Wilkins 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 following information 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 labour hours per product line: 800 1700
Questions:
a) The total estimated manufacturing overhead was $235000. Under traditional costing(which assigns overhead on the basis of direct labour hours), what amount of manufacturing overhead costs are assigned to
1. one mobile safe?
2. one walk-in safe?
b) The total estimated manufacturing overhead of 235000 was composed of 150000 for material-handling cost and 85000 for purchasing activity costs. Under activity-based costing (ABC).
1. What amount of material handling costs are assigned to
a) one mobile safe?
b) one walk-in safe?
2. What amount of purchasing activity costs are assigned to
a) one mobile safe?
b) one walk-in safe?
c) Compare the amount of overhead allocation to one mobile safe and to one walk-in safe under the traditional costing approach versus under ABC.
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Solution Summary
The options for overhead cost allocations are examined.
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