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    ABC, variable, overhead cost allocations

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    1. Information for Gifford, Inc., as of December 31 follow:
    Administrative salaries-----------------------$35,000
    Dpreciation of factory equipment------------25,000
    Depreciation of delivery vehicles--------------6,000
    Direct labor----------------------------------------68,000
    Factory supplied used-----------------------------9,000
    Finished goods inventory, January 1----------57,000
    Finished goods inventory, Dcember 31--- ?
    Factory insurance -------------------------------- 15,500
    Interest Expense-----------------------------------12,000
    Factory utilities-------------------------------------14,000
    Factory maintenance--------------------------------7,500
    Raw materials inventory, January 1------------5,000
    Raw materials inventory, December 31--------4,000
    Raw material purchase -------------------------125,000
    Rent on factory building--------------------------25,000
    Repairs offactory equipment--------------------11,500
    Sales comissions-----------------------------------37,500
    Goods in process inventory, January 1----------3,500
    Goods in process inventory, December 31-----2,700
    Prepare a manufacturing statement for the year ended December 31.

    2. The following cost items relate to the Brock Company. Classify each cost as a variable cost, a
    fixed cost, or a mixed cost placing an X in the appropirate clumn. Each cost should be evaluated in
    terms fo the volume of unites of finished products produced. Also indicate with an X for each item
    if it is a product cost or a period cost.

    Variable, fixed, or mixed cost?
    Cost item Variable. Fixed Mixed
    Executive slarary
    Direct labors
    Direct materials
    Depreciation of manufacturing equipment
    Indirect labor
    Factory utilities
    Delivery expense
    Television advertising
    Indirect materials

    10. Outdoor Sports, Inc., produces two types of skis, downhill skis and cross country skis.
    Product and production information about the two items is shown below:

    Downhill skis Cross country skis
    Number os sets sold....... 75,000 125,000
    Number of setups........... 200 50
    Total direct labor hours... 150,000 hours 250,000 hours
    Direct labor hours per unit.. 2 hours 2 hours
    Total machine hours---------- 25,000 hours 100,000 hours
    Machine hours per unit------ 0,333 hours 0,08 hours

    Indirect costs consist of the following
    Depreciation of factory equipement... $2,000,000
    Setup costs........................................ 1,500,000
    Miscellaneous indirect costs.............. 1,000,000
    Total.................................................. $4,500,000

    1. If Outdoor Sports uses the traditional two-stage method of allocating overhead costs based on
    direct labor hours, what is the amount of indirect costs per set of skis each of the two types of

    2. If Outdoor Sports uses activity based costing, what is the total amount of indirect costs per set of
    skis for each of the two types of skis? Assume that depreciation is allocated based on
    machien hours, setup costs based on the number of setups, and miscellaneous costs based on the
    number of direct labor hours.

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    Solution Summary

    ABC, variable and overhead cost allocation is examined for an Outdoor Sports store.