1.

Label the following costs as value-adding (VA) or non-value-adding (NVA):

____ 1. Engineering design
____ 2. Machine repair
____ 3. Inventory storage
____ 4. Machining
____ 5. Assembly
____ 6. Painting
____ 7. Inspections
____ 8. Packaging

2. Gail Industries uses activity-based costing to assist management in setting prices for the
companys three major product lines. The following information is available:
Expected Use of
Activity Cost Pool Estimated Overhead Cost Driver per Activity
Cutting $1,000,000 25,000 labor hours
Stitching 8,000,000 320,000 machine hours
Inspections 2,800,000 160,000 labor hours
Packing 960,000 64,000 finished goods units
Instructions
Compute the activity-based overhead rates.

Estimated Expected Use of Activity-Based

Activity Cost Pool Overhead Cost Driver per Activity = Overhead Rates
Cutting
Stitching
Inspections
Packing

3. Sonoma Manufacturing has five activity cost pools and two products (a budget tape
vacuum and a deluxe tape vacuum). Information is presented below:

Cost Drivers by Product

Activity Cost Pool Cost Driver Est. Overhead Budget Deluxe
Ordering and Receiving Orders $ 120,000 600 400
Machine Setup Setups 297,000 500 400
Machining Machine hours 1,000,000 150,000 100,000
Assembly Parts 1,400,000 1,200,000 800,000
Inspection Inspections 300,000 550 450
Instructions
Compute the overhead cost per unit for each product. Production is 700,000 units of Budget
and 200,000 units of Deluxe. Round your answer to the nearest cent.
Activity Cost Pool Est. Overhead Total Est. Activity = Overhead Rate
Ordering & Receiving
Machine Setup
Machining
Assembly
Inspection

Budget Deluxe
Cost Cost Cost Cost
Activity Cost Pool Driver Rate = Assigned Driver Rate =
Assigned
Ordering & Receiving
Machine Setup
Machining
Assembly
Inspection