PROBLEM #1 Dunn Company produces two products, Fred and Barney.

Overhead has traditionally been allocated on the basis of direct labor hours.
Dunn recently sat up 3 activity centers to implement ABC costing. Information
concerning this follows:
Estimated Activity Estimated
Activity Centers
Fred Barney Cost
Machine setups 12 setups 36 setups $ 96,000
Assembly 2,000 square feet 3,000 square feet 180,000
Packaging 600 crates 400 crates 34,000
Direct labor hours 2 hours per unit 3.3 hours per unit
Estimated volume 700 units 2,000 units
A. How much overhead is budgeted to be allocated to each ‘Fred’ and Barney
under the traditional approach?
B. Determine the overhead to be allocated per unit to each Fred and ‘Barney’
under ABC.
C. List which of the items provided above are cost drivers.
PROBLEM #2 Wislow Company manufactures three product costs. It
presently uses a single factory overhead rate for allocating factory overhead
to products, based on direct labor hours. The total factory overhead cost is
budgeted as follows:
Manufacturing
Department
Overhead
Production $1,225,000
Supervision and janitorial 175,000
The company determined that it performed four major activities in the
production department as follows:
Activities Budgeted Cost
Setup $428,750
Storeroom support 367,500
Quality control 183,750
Production monitoring 245,000

Wislow Company estimated the following activity-base usage quantities and

units produced for each of its three products:
Direct Labor Production Material
Products Units Setups Inspections
Hours Orders Requisitions
A 10,000 25,000 80 80 35 320
B 2,000 10,000 40 40 40 400
C 50,000 140,000 5 5 0 30
Total 62,000 175,000 125 125 75 750
A. Determine the budgeted factory overhead cost per unit for Products A, B,
and C using the traditional cost allocation system.
B. Use ABC costing to determine the budgeted factory overhead cost per unit
for Products A, B, C.
PROBLEM #3 Nader Company manufactures 15 models of widgets and has
used a traditional overhead allocation based on direct labor cost. The
following costs and activities are expected for June:
Activity Cost
Direct labor 3,625 direct labor hours $58,000

Indirect costs
Materials ordering 600 purchase orders $12,600
Materials handling 21,000 crates of 42,000
materials
Quality control 900 inspections 32,400
Total indirect costs $87,000

Nader will produce 1,000 blue widgets in June with following production costs:

Direct labor 140 hours @ $16 per

hour
Purchase orders 18
issued
Crates of materials 1,500
used
Inspections made 14

A. Calculate the overhead cost allocated to each blue widget under the
current traditional approach.
B. Calculate the overhead cost allocated to each blue widget using the ABC
approach.
PROBLEM #4 Mattel, Inc. produces 2 products, Barbie and Ken. Overhead
has been assigned using direct labor hours in the past. Mattel just set up 3
activity centers, machines setups, maintenance, and packaging to implement
ABC costing. Product information follows:
Estimated Activity Estimated
Activity Centers
Barbie Ken Total Cost
Estimated production 1,600 units 2,400 units 4,000 units
Machine setup 144 setups 48 setups 192 setups $72,000
3,360 square 1,440 square 4,800 square
Maintenance feet feet feet $160,000
Packaging 2,000 crates 3,000 crates 5,000 crates $80,000
Direct labor hours ($20 per
2 hours per unit 3 hours per unit 10,400 hours
hour) $208,000
 Direct material ($5 per
1 pound 2 pounds 6,400 pounds
pound) $32,000
A. If the traditional approach is used, how much is the overhead rate?
B. How much overhead will be allocated to each ‘Ken’ and Barbie under the
traditional approach?
C. Determine the budgeted overhead to be allocated per unit to each ‘Barbie’
and Ken under ABC.
D. List the items provided above that are cost drivers.
E. List the items above that are cost objects.
PROBLEM # 5 Q15 Company estimated the following costs and activities for
its two products, stools and buckets, for 2008:
Cost Activity
Direct materials $135,000 9,000 yards at $15 per yard
Direct labor $102,000 5,100 hours @ $20 per hour
Machine Setup $60,800 320 setup hours
Materials Handling $88,200 4,200 loads of materials moved
Electric Power $40,000 20,000 kilowatt-hours
Q15 applies overhead based on direct labor cost. The following information
pertains to the actual production of stools and buckets:
Stools Buckets
Units produced 5,000 20,000
Direct materials $75,000 $61,200
Direct labor $40,000 $60,000
Setup hours 160 140
Loads of materials 1,000 3,000
moved
Kilowatt-hours 17,000 2,000
consumed

A. What cost driver will Q15 use to determine the pre-determined rate using a
traditional cost system? (Be specific.) Briefly explain your choice.
B. How much is the unit cost for stools and buckets using the ABC
approach?