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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.