Accounting

Exercise A – Chapter 6 Activity-Based, Variable, and Absorption Costing

EA1.

LO 6.1Steeler Towel Company estimates its overhead to be $250,000. It expects to have 100,000

direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours. Calculate the

predetermined overhead rate using:

A. Direct labor hours

B. Direct labor dollars

C. Machine hours

EA2.

LO 6.1Crystal Pools estimates overhead will utilize 250,000 machine hours and cost $750,000.

It takes 2 machine hours per unit, direct material cost of $14 per unit, and direct labor of $20 per

unit. What is the cost of each unit produced?

EA3.

LO 6.1A company estimated 100,000 direct labor hours and $800,000 in overhead. The actual

overhead was $805,100, and there were 99,900 direct labor hours. What is the predetermined

overhead rate, and how much was applied during the year?

EA4.

LO 6.1Cozy, Inc., manufactures small and large blankets. It estimates $350,000 in overhead

during the manufacturing of 75,000 small blankets and 25,000 large blankets. What is the

predetermined overhead rate if a small blanket takes 1 machine hour and a large blanket takes 2

machine hours?

EA5.

LO 6.2Identify appropriate cost drivers for these cost pools:

A. setup cost pools

B. assembly cost pool

C. supervising cost pool

D. testing cost pool

EA6.

LO 6.2Match the activity with the most appropriate cost driver.

Activities and Cost Drivers

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Exercise A – Chapter 6 Activity-Based, Variable, and Absorption Costing

Activity Cost Driver

Fringe benefits Square feet

Electricity Direct labor hours

Depreciation Machine hours

Machine maintenance

Heat and air conditioning

Table6.5

EA7.

LO 6.3Rex Industries has two products. They manufactured 12,539 units of product A and 8,254

units of product B. The data are:

What is the activity rate for each cost pool?

EA8.

LO 6.3Rex Industries has identified three different activities as cost drivers: machine setups,

machine hours, and inspections. The overhead and estimated usage are:

Compute the overhead rate for each activity.

EA9.

LO 6.3Custom’s makes two types of hats: polyester (poly) and silk. There are two cost pools:

setup, with an estimated $100,000 in overhead, and inspection, with $25,000 in overhead. Poly is

estimated to have 750,000 setups and 170,000 inspections, while silk has 250,000 setups and

80,000 inspections. How much overhead is applied to each product?

EA10.

LO 6.3Custom’s has three cost pools and an associated cost driver to allocate the costs to the

product. The cost pools, cost driver, estimated overhead, and estimated activity for the cost pool

are:

What is the predetermined overhead rate for each activity?

EA11.

LO 6.3Potterii sells its products to large box stores and recently added a retail line of products to

sell directly to consumers. These estimates are to be used in determining the overhead allocation

rate for ABC:

What would be the predetermined rate for each cost pool?

EA12.

LO 6.3Assign each of the following expenses to either the machine setup cost pool or the factory

cost pool:

A. indirect materials

B. factory insurance

C. machine depreciation

D. machine setup (indirect labor)

E. machine setup (indirect material)

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Exercise A – Chapter 6 Activity-Based, Variable, and Absorption Costing

EA13.

LO 6.4Tri-bikes manufactures two different levels of bicycles: the Standard and the Extreme.

The total overhead of $300,000 has traditionally been allocated by direct labor hours, with

150,000 hours for the Standard and 50,000 hours for the Extreme. After analyzing and assigning

costs to two cost pools, it was determined that machine hours is estimated to have $200,000 of

overhead, with 4,000 hours used on the Standard product and 1,000 hours used on the Extreme

product. It was also estimated that the setup cost pool would have $100,000 of overhead, with

1,000 hours for the Standard and 1,500 hours for the Extreme. What is the overhead rate per

product, under traditional and under ABC costing?

EA14.

LO 6.5Cool Pool has these costs associated with production of 20,000 units of accessory

products: direct materials, $70; direct labor, $110; variable manufacturing overhead, $45; total

fixed manufacturing overhead, $800,000. What is the cost per unit under both the variable and

absorption methods?

EA15.

LO 6.5Using this information from Planters, Inc., what is the cost per unit under both variable

and absorption costing?

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