Chapter 4
Challenge Exercise Solutions
Solution
CE 4-1
a) $450,000/225,000 = $2.00 overhead per $ of direct labor cost
c) Allocation
Traditional
Family Model $75,000 x $2 = $150,000
Deluxe Model $150,000 x $2 = $300,000
d) (1) Machining $240,000/4,000 hours = $60.00 per hour
Machine set up $170,000/1,000 hours = $170 per hour
Packaging $40,000/125 hours = $320 per hour
Solution
CE4-2
a)
(1) Traditional Costing 21% x $324,000 = $68,040
(2) Activity-Based Costing
Expected Use of Activity Based
Activity Cost Pool Cost Driver Overhead Rate Overhead Assigned
Materials Inspection 50,000 pounds $0.70 per pound $ 35,000
b) The traditional product costing system overcosts overhead by $2,940. (68,040 –
c) Materials Inspection = Non-value added
d)
Expected Use of Activity Based
Activity Cost Pool Cost Driver Overhead Rate Overhead Assigned
Materials Inspection 50,000 pounds $0.70 per pound $ 35,000