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Nine Company makes three products: Product 1, Product 2, and Product 3. The company
currently uses a traditional cost system and applies overhead based on direct labor hours.
Management estimated 4,000 direct labor hours for the year. An analysis of overhead costs
showed the following.

Activity

Cost driver

Annual cost

Setting up production

Number of production runs

Processing orders

Number of orders

60,000

200 orders

Handling materials

Pounds of materials

24,000

8,000 pounds

Using machines

Machine hours

72,000

10,000 machine hours

Inspecting

Number of inspections

60,000

40 inspections

Packing

Units produced

48,000

20,000 units

\$36,000

\$300,000

The following results occurred during February.

Direct materials cost

Product 1

Product 2

Product 3

\$6,000

\$3,750

\$3,000

Annual cost driver units
100 runs

Direct labor cost

\$3,000

\$3,600

\$3,300

100

120

110

Number of production runs

2

4

8

Number of orders

8

8

4

Pounds of materials

400

800

200

Machine hours

500

300

300

2

2

2

1,000

500

400

Direct labor hours

Number of inspections
Units produced

1. Calculate the overhead rate for the traditional cost system using direct labor hours to apply
2. Determine the total cost of Product 1 in the traditional cost system using direct labor hours to apply
3. Determine the total cost of Product 2 in the traditional cost system using direct labor hours to apply
4. Determine the total cost of Product 3 in the traditional cost system using direct labor hours to apply
5. Assume Nine Company uses activity-based costing. Determine the cost driver rate used to apply
overhead for the “setting up production” activity.
6. Assume Nine Company uses activity-based costing. Determine the cost driver rate used to apply
overhead for the “processing orders” activity.
7. Assume Nine Company uses activity-based costing. Determine the cost driver rate used to apply
overhead for the “handling materials” activity.
8. Assume Nine Company uses activity-based costing. Determine the cost driver rate used to apply
overhead for the “using machines” activity.

9. Assume Nine Company uses activity-based costing. Determine the cost driver rate used to apply