MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
8: Product Costing
Exercises
and Problems:
81: A company allocates overhead based on direct labor cost (dollars). The rate is 160% of the direct labor cost. A job has direct materials cost of $12,000 and direct labor cost of $14,000 (700 labor hours). What is the total cost of the job?
(A) $26,000
(B) $34,400
(C) $48,400
(D) $27,120
82: A multiproduct manufacturing company uses many different machines and employs a labor force with widelyvarying skill levels and pay rates. Generally, the higher paid and more skilled employees operate the more complex and expensive machinery. If all overhead is going to be applied using a single overhead rate, based on the information provided, which allocation base would work best in this environment?
(A) Machine hours
(B) Direct labor hours
(C) Direct labor dollars
(D) Direct material dollars
83: The Quad City Candy Company uses a budgeted overhead rate, and
allocates variable overhead based on direct material costs (i.e., direct
materials dollars). The company only allocates variable overhead; the company
does not allocate fixed overhead. Following is information for the year 2005:

Budget 
Actual 
Boxes of candy (this is
output) Variable overhead Fixed overhead Direct labor: Hours per box Hourly wage rate Direct materials: Pounds per box Cost per pound 
10,000 $20,000 $10,000 0.5 $10 2 $5 
11,000 $22,000 $13,200 0.4 $12 2 $4 
Required:
Calculate the overhead rate for applying overhead:
84: The Santa Fe Candy Company expects to incur overhead of $60,000. Also, the company expects to incur 300 direct labor hours (which is paid an average of $20 per hour) and 200 machine hours, in order to produce 30,000 pounds of candy. Using the information provided, calculate four different overhead rates using four different allocation bases. In each case, be sure to identify the allocation base.
85: The Bernalillo factory of Winrock and Associates makes two models of a portable pneumatic compressor: Model #A567 and Model #B234. Information about the year 1967 follows:

Model #A567 
Model #B234 
Units produced Direct materials costs Direct labor hours 
500 $40,000 5,000 
500 $60,000 5,000 
Factory overhead for the year was $180,000. The
average wage rate for workers on the Model #A567 production line is $10 per hour.
The average wage rate for workers on the Model #B234 production line is $20 per
hour.
Required:
A) Assume the company allocates overhead based on direct
labor hours. What is the overhead rate?
B) What is the total cost per unit for the Model #B234?
C) Assume
the company changes the allocation base from direct labor hours to direct labor
costs (i.e., direct labor dollars). What is the new overhead rate?
D) Using this new overhead rate, what is the new cost per
unit for the Model #B234?
86: Following is information about Aztech Industries, which makes three types of portable heaters:

Model A 
Model B 
Model C 
Total 
Units produced Direct materials (per unit) Direct labor (per unit) Cost driver information: # of parts (per unit) direct labor hours (per unit) square feet (in total) Overhead cost pools: Labor Support Materials Support Facility Cost Total overhead 
300 $50 $20 20 3 400 
500 $75 $50 42 4.60 600 
200 $100 $40 30 4 1,000 
1,000 $22,000 $33,000 $90,000 $145,000 
Required:
A) Allocating Facility Cost using square feet as the allocation base, how much Facility Cost overhead would be allocated to each Model A heater?
B) If Labor Support is allocated using direct labor hours as the allocation base, what is the overhead rate for allocating Labor Support?
C) If all overhead is allocated using direct materials dollars as the allocation base, what is the total cost of manufacturing each Model C heater?
87: The Lobaton Cookie Company makes three types of cookies: sugar cookies, oatmeal cookies, and chocolate chip cookies. Following is information for December:

Sugar Cookies 
Oatmeal Cookies 
Chocolate Chip Cookies 
Pounds of cookies produced Machine hours Direct labor hours Average wage per hour 
700 pounds 20 hours 7 hours $10 per hour 
300 pounds 10 hours 6 hours $12 per hour 
400 pounds 10 hours 8 hours $9 per hour 
Total overhead incurred in December was $8,400.
Required:
A) Calculate the overhead applied per pound of Oatmeal Cookies, when all overhead is applied using machine hours as the allocation base.
B) Now assume that $4,000 of the overhead is fixed, and the remainder is variable. Calculate the overhead applied per pound of Sugar Cookies, using machine hours to allocate fixed overhead and direct labor dollars to allocate variable overhead.
88: The Svendsgaard Organic Cereal Company makes 20 brands of cereal, including wheat squares, corn squares, and rice squares. Following is information for December:

Wheat Squares 
Corn Squares 
Rice Squares 
Pounds of cereal produced Machine hours Direct labor hours 
800 pounds 40 hours 45 hours 
600 pounds 30 hours 60 hours 
500 pounds 30 hours 40 hours 
Total overhead incurred in December was $10,000. Total machine hours incurred were 500.
Required:
A) Calculate the overhead rate using machine hours as the allocation base.
B) Calculate the overhead applied per pound of corn squares using machine hours as the allocation base.
89: Teddy Bear Fudge
Company makes two types of fudge: plain fudge and fudge with nuts. Following is
information for operations in the month of February. All quantities are
expressed in pounds. There is no direct labor.

Total 
Plain Fudge 
Fudge with Nuts 
Beginning inventory Production Sales Per unit information: Sales price per pound Direct materials Sales commission Variable manufacturing
overhead Fixed costs: Fixed manufacturing
overhead Fixed nonmanufacturing
overhead 
0 1,000 850 $500 $2,000 $300 
0 600 500 $8.00 $2.00 $0.50 
0 400 350 $8.00 $2.25 $0.50 
Required: What is the manufacturing cost for each type of fudge,
assuming the company allocates overhead based on direct materials dollars?
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Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printerfriendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu