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Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
IRM t/a Langfield-Smith, Thorne, Smith, Hilton Management Accounting 7e
1
CHAPTER 7
A CLOSER LOOK AT OVERHEAD COSTS
ANSWERS TO REVIEW QUESTIONS
7.1 When we refer to manufacturing overhead costs we are describing the indirect manufacturing costs of products.
These are the factory costs that are incurred in producing products but cannot be traced directly to them. They
include all manufacturing costs other than direct material and direct labour, such as the costs of supervision,
power, factory security and so on. From a product costing perspective, we can expand our definition of
overheads to include all product-related costs other than direct costs as managers may require comprehensive
estimates of product costs for making product-related decisions (see Chapter 4). However, as Australian
accounting standard AASB 102 Inventories requires that inventory valuations in external reports of
manufacturing businesses only include manufacturing costs, a distinction is drawn between indirect costs within
the manufacturing area, called manufacturing overhead, and other indirect costs incurred along the value chain,
upstream and downstream, of the manufacturing or production area.
Upstream costs and downstream costs, regardless of whether the entity is a manufacturer or a service provider
include costs incurred before and after the production process, such as research and development, design and
supply costs, marketing, distribution and customer service costs.
The indirect costs of responsibility centres are costs assigned to a unit in an organisation such as a department or
division where a manager is held accountable for performance. Indirect costs cannot be traced directly to the
centre so they need to be assigned instead.
7.2 Cost object: is something that is assigned a separate measure of cost because management need such cost
information; for example, responsibility centres, products, projects and so on. (The various production
departments in a manufacturing firm also provide examples of cost objects. For example, the material handling
cost pool may be allocated across the various production departments that use material handling services. In a
hospital costs may be assigned to reception, a ward, a doctor, operating theatres or intensive care unit (ICU) and
so on.)
Cost pool: a collection of costs that are to be assigned to cost objects. Costs are often pooled because they have
the same cost driver. (An example of a cost pool is all costs related to material handling in a manufacturing
firm.)
Cost allocation base: is some factor or variable that is used to allocate costs in a cost pool to cost objects. (An
example of a cost allocation base may be the weight of materials handled for each production department that
uses material handling services. This base would be used to assign the costs in the material handling cost pool to
the production departments.)
Cost driver: is a factor or activity that causes a cost to be incurred. (From the example above, the allocation base
of weight of materials handled for each production department may be a cost driver depending on its causal
relationship to the costs in the cost pool.)
The difference between cost allocation bases and cost drivers is that cost drivers are allocation bases but not all
allocation bases are cost drivers. Ideally allocation bases should be cost drivers; that is, there should be a cause
and effect relationship between the costs in the cost pool and the allocation base. In practice, some allocation
bases do not have this relationship, or the relationship is imperfect. Under these circumstances the accuracy of
the cost allocations can be questioned.
7.3 As shown in Exhibit 7.2 (Estimating the cost of a cost object), in estimating the cost of a cost object, direct costs
are traced directly to the cost object and indirect costs (those with no direct linkage to the cost object) are
collected into cost pools and assigned to the cost object by means of allocation bases, preferably cost drivers.
Some possible examples of cost objects and their direct and indirect costs for the NGOs involved in the tsunami
relief efforts (described in the ‘Real life - Measuring tsunami recovery costs: an overhead or not?’ on page 276)
follow:

2
Cost objects Direct costs Indirect costs
Programs to deliver
immediate disaster relief
• Campaign and administrative costs
that can be directly traced to
specific program
• Salaries of program designer and
planners
• Salaries of appeal workers
• Salaries of relief workers in
disaster area
• Transport of staff and relief goods
to disaster area
• Accommodation for relief workers
• Technical and logistical consulting
costs
• Food and clean water
• Medicines
• Temporary shelter
• General office and administrative
costs of NGO (depreciation of
office equipment, general
stationery and postage, rent,
cleaning, general accounting and
office staff salaries, bank fees etc)
• Salaries of CEO and top
management
• Legal, insurance and risk
management costs not directly
traceable
• Marketing, advertising, publishing
and other costs for general
awareness and fund raising
campaigns
• Consulting and advocacy activity
costs of seeking change in
government and institutional
policies
• External audit and reporting costs
Projects to:
• rebuild after a disaster
event
• construct additional
infrastructure
• deliver long-term
community development
• Administrative costs that can be
directly traced to specific projects
• Salaries of project designers and
planners
• Salaries of staff involved in project
field work
• Transport of staff and materials to
field
• Accommodation for field staff
• Technical and engineering
consulting costs
• Building and infrastructure
materials
• General office and administrative
costs of NGO (depreciation of
office equipment, general
stationery and postage, rent,
cleaning, general accounting and
office staff salaries, bank fees etc)
• Salaries of CEO and top
management
• Legal, insurance and risk
management costs not directly
traceable
• Marketing, advertising, publishing
and other costs for general
awareness and fund raising
campaigns
• Consulting and advocacy activity
costs of seeking change in
government and institutional
policies
• External audit and reporting costs

3
7.4 A cost allocation base is some factor or variable that allows us to allocate costs in a cost pool to a cost object.
One possible allocation base for assigning advertising costs to the various attractions of a large theme park
would be the number of people patronising the park’s attractions. This would assume that the number of people
attending a certain part of the theme park would be an indication of the advertising resources consumed by each
attraction. Notice that in most cases the sales revenue generated by the various components of the theme park
would not be a viable allocation base since most theme parks have a single admission fee for the entire park.
Note that some people would consider ‘corporate’ advertising of this nature should not be allocated to the
various subunits of the business, as it is very hard to determine a causal cost driver. In activity-based costing
terminology the advertising could be regarded as a facility cost.
7.5 The development of departmental overhead rates involves a two-stage process.
In stage one, overhead costs are assigned to the firm’s production departments. First, overhead costs are
distributed to all departments, including both support and production departments. Second, support department
cost allocation takes place which involves costs being allocated from the support departments to the production
departments. At the end of stage one, all overhead costs have been assigned to the production departments.
In stage two, overhead application occurs as the costs that have been accumulated in the production departments
are applied to the products that pass through the departments using the overhead rate set for each production
department.
7.6 A support department is a unit in an organisation that is not involved directly in producing the organisation’s
goods or services. However, a support department does provide services that enable the organisation’s
production process to take place. Production departments, on the other hand, are units that are directly involved
in producing the organisation’s goods and services.
Examples of ‘production’ departments in a bank may include cheque processing, tellers, loan departments and so
on. Examples of support departments in a restaurant chain may include washing dishes (either manual or
stacking and unstacking dishwashers), cleaning, ordering/buying (some franchises rely on ordering from a
central unit and some require purchasing at the local market), bookings desk, head office, laundry and
accounting.
7.7 Activity-based costing can be used to assign manufacturing overhead costs to products in two stages. In the first
stage overhead costs are assigned to activity cost pools (that is, activities). In the second stage, activity costs are
assigned from the activities to products in proportion to the products' consumption of each activity, measured by
the amount of activity driver consumed. In traditional costing systems, when a two-stage allocation process is
used, the first stage is to assign overhead costs to production departments and the second stage is to assign the
overhead costs from the production departments to products in proportion to the products' consumption of the
departmental overhead cost drivers.
7.8 Using departmental overhead rates instead of a single plantwide overhead rate can improve the accuracy of
product cost information. The allocation bases used for each department are likely to be more realistic in
representing the relationship between overhead costs and the product, compared to using just one plantwide rate.
However, using departmental overhead rates requires the distribution of overhead costs to departments, the
allocation of support department costs to production departments and the collection of cost driver data by
production departments. While this approach usually provides more useful information than the single cost pool
approach, it is more expensive to operate and still can provide misleading information. A problem with this
approach is that costs with different behaviour patterns are added together before allocation to the product. It is
difficult to identify a realistic cost driver for a cost pool that includes setup costs, space costs and indirect
material costs, for example.
Using activity-based costing should improve the accuracy of cost information. Allocating costs to activities
rather than departments enables the identification of even more appropriate allocation bases. For example ABC
uses both volume and non-volume based cost drivers as allocation bases and attempts to aggregate costs that
have similar behaviour patterns. Again, however, there is an additional cost in analysing costs and cost drivers at
an activity level rather than at a department level.

4
7.9 A cost driver is an activity or factor that causes costs to be incurred. A volume-based cost driver is a cost driver
that is a measure of or proxy for the volume of production. An assumption underlying the use of a volume-based
cost driver is that costs are caused, or driven, by the volume of production. Examples include direct labour
hours, machine hours and direct material volume.
Non-volume based cost drivers are cost drivers that are not directly related to the number of units produced. For
example in manufacturing the set up costs are not driven directly by the units of output since each batch can vary
in volume. In a bank, non-volume based costs can include human resource management (driven by staff
numbers), cleaning (driven by floor space or room numbers), and IT servicing (possibly driven by the number of
computers).
7.10 Labour cost is a commonly used base for allocating overhead costs to cost objects including projects such as
those undertaken by FFA. Although such projects may be self funded by the member countries they result in
additional overhead costs being incurred by the FFA. As these overhead costs cannot be specifically traced cost-
effectively to the individual projects, an appropriate allocation base is needed to allocate them to the individual
projects to avoid cross-subsidisation of projects from member contributions and donations.
It is likely that there is some relationship between the level of salary costs for the projects and the increase in
overhead costs incurred by the FFA (as larger, higher cost projects are likely to require more support from FFA),
though the correlation is unlikely to be perfect. In the absence of a stronger logical connection and a more
practical, cost effective allocation base the use of salary costs as the allocation base may be reasonable.
However, it is not surprising that the member countries questioned and sought independent advice on the
accountability of the seemingly high overhead recovery rate of 66% of salary costs, because to them the
overhead recovery is an uncontrollable cost.
7.11 The primary benefit of using a predetermined overhead rate instead of an actual overhead rate is to provide
timely information for decision making, planning and control. Also the predetermined rate removes fluctuations
inherent in monthly actual overhead rates. While the use of actual overhead rates removes the need to account
for over- or under-allocated overhead, this is because it relies on data that are not known until after the event, so
it cannot be used in a timely fashion. Notice that in both approaches, it is necessary to calculate an overhead rate,
as overhead costs cannot be traced directly to products.
7.12 The denominator volume is the measure of cost driver volume used to calculate the manufacturing overhead
rate. The most common measure is the budgeted volume of cost driver for the coming year. Theoretical capacity
is the maximum level of production that the plant can run at, without ever stopping. Practical capacity assumes
the business operates at the maximum level that its resources allow under normal, efficient operating conditions.
Product costs will be higher using practical capacity, as the denominator measure of cost driver volume will be
lower, resulting in higher overhead rates. Using theoretical capacity as the denominator will result in lower
overhead rates and product costs, but there will be higher levels of underapplied overhead.
7.13 Management accountants allocate indirect costs to responsibility centres to help managers understand the effects
of their decisions, to encourage particular patterns of resource usage and to support the product costing system.
For example production departments may source services from support departments and where these services are
supplied for ‘free’ there may be a tendency to over-consume them. Where they are charged to departments, the
departmental managers are held responsible for these costs and need to be careful about the amount of these
services they consume. Also, where departmental overhead rates are used for product costing, it is necessary to
allocate the costs of support departments to production departments, to calculate departmental overhead rates for
the production departments.
The problems encountered in allocating a proportion of costs of the Prime Infrastructure Group (which changed
its name to Babcock and Brown Infrastructure on 1 July 2005) to its responsibility centre of Dalrymple Bay Coal
Terminal (DBCT) related to the disentanglement of overheads associated with DBCT’s operations from the costs
of other activities within the Prime group. The amount of overhead allocated by Prime to DBCT affected the
overhead cost per loaded tonne sought to be recovered by DBCT in the total price per loaded tonne of coal
charged to terminal users. The terminal users have little option but to use the terminal facility because of its
monopolistic nature. The competition authority, to ensure fair and reasonable access for terminal users, needed
to approve the terms and conditions of terminal access. It sought an independent review of Prime’s method of
allocating overhead to DBCT, which found that Prime had not reliably estimated the amount of overhead
relating to DBCT. This ‘Real life’ example illustrates the impact that overhead cost allocation choices can have,
not only on product costs and product prices, but also industry competitiveness.

5
7.14 Budgeted support department costs should be allocated rather than actual support department costs. If actual
costs were allocated, the activities of the department that provides the services could compromise the results of
the department that uses these services as well as their ability to plan activities. The incentive for cost control in
the department that provides the services may be reduced if they just transfer those excesses to the next
department. The allocation on the basis of budgeted figures highlights the good or poor results in the sourcing
department.
7.15 Under the direct method of support department cost allocation, all support department costs are allocated
directly to the production departments, and none of these costs are allocated to other support departments. Under
the step-down method, a sequence is first established for allocation of support department costs. Then the costs
incurred in the first support department in the sequence are allocated among all other departments that follow in
the sequence, including other support departments. The method proceeds in a similar fashion through the
sequence of support departments, never allocating back to a support department that has had its costs allocated.
Under the reciprocal services method, a system of simultaneous equations is established to reflect the reciprocal
provision of services among support departments. Then, all of the support departments’ costs are allocated
among all of the departments that use the various support departments’ output of services. The reciprocal
services method of support department cost allocation is the only method that fully accounts for the reciprocal
provision of services among departments.
7.16 As stated in the previous answer, under the reciprocal services method all of the support departments’ costs are
allocated among all of the departments that use the various support departments’ output of services. It is the only
method that fully accounts for the reciprocal provision of services among departments. However, this degree of
accuracy may not be necessary for the purpose and sometimes makes very little difference to the resulting
costings. The degree of inaccuracy of the reciprocal and step down methods depends on the amount of overhead
in each cost pool and the level of support provided between departments. As the method of allocating support
department costs becomes more detailed and sophisticated the cost of maintaining the system increases.
7.17 The term reciprocal services refers to two or more support departments providing support services to each other.
In a university, for example, the IT department provides support services to the human resource (HR)
department but the human resource department also provides HR support to the IT department. In fact IT gives
support to all other departments (e.g maintenance, grounds, student administration, faculty administration,
library, security) and receives support from many of them (maintenance of facilities, HR, security).
7.18 The contribution margin statement is used to highlight the separation of variable and fixed costs. The total
contribution margin is equal to sales revenue less the variable cost of goods sold (sometimes called the variable
manufacturing expenses) and the variable selling and administrative expenses. The fixed expenses deducted
below the contribution margin include both fixed manufacturing overhead and fixed selling and administrative
expenses.
In the absorption costing income statement the cost of goods sold expensed, for each month, includes variable
manufacturing costs and the predetermined fixed manufacturing overhead cost applied to products sold. The
expenses deducted after that are the selling and administrative expenses, which include both fixed and variable
components.
7.19 Both absorption and variable costing systems assign direct material, direct labour and variable manufacturing
overhead costs to products in exactly the same way, but they differ over their treatment of fixed manufacturing
overhead. Absorption costing includes fixed manufacturing overhead as a part of product cost. Variable costing
excludes fixed manufacturing overhead from product cost and expenses it in the period in which it is incurred.
The key distinction between variable and absorption costing is the timing of fixed manufacturing overhead
becoming an expense. Eventually, fixed overhead is expensed under both product costing systems. Under
variable costing, fixed overhead is expensed immediately, when it is incurred. Under absorption costing, fixed
overhead is inventoried and not expensed until the accounting period during which the manufactured goods are
sold.

6
7.20 Variable product costs are particularly useful for short-term decisions, such as whether to make or buy a
component, and pricing—especially when variable selling and administrative costs are included. The fixed costs
will be incurred anyway and in the short term they should be disregarded. In making these decisions, the variable
costs provide a good measure of the differential costs that need to be assessed. The information needed for short-
term decision making is discussed in Chapter 19.
Under variable costing, profit is a function of sales. The classification of costs as fixed or variable makes it
simple to project the effects that changes in sales have on profit. Managers find this useful for decision making.
Also, cost volume profit analysis (which we discuss in Chapter 18) requires a variable costing format.
Planned costs must take account of cost behaviour if they are to provide a reliable basis for control. In addition,
the link between sales and profit performance, under variable costing, ensures a performance measure that
managers understand easily.
Fixed costs are an important part of the costs of a business, especially in the modern manufacturing environment.
Variable costing provides a useful perspective of the impact that fixed costs have on profits by bringing them
together and highlighting them, instead of having them scattered throughout the statement.
Absorption product costs include unitised fixed overhead, which can result in suboptimal decisions, especially as
fixed costs are not differential costs in the short term. However, in the modern business environment, with a high
level of fixed overhead, a relatively small percentage of manufacturing costs may be assigned to products under
variable costing. Also, in the longer term a business must cover its fixed costs too, and many managers prefer to
use absorption cost when they make cost-based pricing decisions. They argue that fixed manufacturing overhead
is a necessary cost incurred in the production process. When fixed costs are omitted, the cost of the product is
understated.

7
SOLUTIONS TO EXERCISES
Exercise 7.21 (20 minutes) Predetermined overhead rates for various cost drivers:
manufacturer
NOTE: Budgeted sales revenue, although given in the exercise, is irrelevant to the solution.
1 Predetermined overhead rate =
driver
cost
of
level
budgeted
overhead
ing
manufactur
budgeted
(a) $546 000
15 000 machine hours
= $36.40 per machine hour
(b) $546 000
30 000 direct labour hours
= $18.20 per direct labour hour
(c) $546 000
$630 000*
= $0.867 per direct labour dollar or 86.7%
of direct labour cost
*Budgeted direct labour cost = 30 000 hours x $21
Actual overhead rate = actual manufacturing overhead
actual level of cost driver
(a) $510 000
16 500 machine hours
(b) $510 000
= $18.89 per direct-labour hour
(c) $510 000
$607 500*
= $0.84 per direct labour dollar or 84%
of direct labour cost
*Actual direct-labour cost = 27 000 hours x $22.50
2 Denyer Ltd will not know the data for actual costs and cost drivers until the end of the year. For timely decision
making it is necessary to have estimates and use predetermined rates.
Exercise 7.22 (20 minutes) Predetermined plantwide overhead rate: printing firm
budgeted manufacturing overhead
budgeted level of cost driver
$546 000
15000 machine hours
2 Business cards 600  $36.40 = $21 840
Wedding invitations 300  $36.40 = $10 920
Promotion flyers 200  $36.40 = $7280
3 Actual
manufacturing
overhead
−
Applied
manufacturing
overhead
=
Overapplied or underapplied
overhead
$51 000 − (1100)($36.40) = $10 960 underapplied

8
Exercise 7.23 (30 minutes) Predetermined plantwide overhead rate; alternative cost drivers
budgeted manufacturing overhead
budgeted level of cost driver
(a)
$546 000
= $18.20 per direct labour hour
(b) $546 000 = $1.30 per direct labour dollar or
$420 000 130 of direct labour cost
2 (a) Business cards 800 direct labour hours  $18.20 = $14 560
Wedding invitations 600 direct labour hours  $18.20 = $10 920
Promotion flyers 400 direct labour hours  $18.20 = $7280
(b) Business cards (800 direct labour hours)($22.50)  1.30 = $23 400
Wedding invitations (600 direct labour hours)($22.50)  1.30 = $17 550
Promotion flyers (400 direct labour hours)($22.50)  1.30 = $11 700
3 Actual
manufacturing
overhead
−
Applied
manufacturing
overhead
=
Overapplied or underapplied
overhead
(a) $51 000 − (1800)($18 20) = $18 240 underapplied overhead
(b) $51 000 – (1800)($22.50)(1.30)† = $1650 overapplied overhead
† Actual direct labour cost = 1800  $22.50
In hindsight, direct labour dollars seems the most appropriate cost driver, as it results in the lowest level of
underapplied/overapplied overhead. It therefore appears to better represent the behaviour of overhead costs.
However, it is difficult to make this judgment based on just one month’s data.
Exercise 7.24 (10 minutes) Departmental overhead rates: manufacturer
Applied manufacturing overhead per deluxe saddle and accessory set:
Tanning Department 110 m2
 $8 $ 880
Assembly Department 4 machine hours  $22 88
Saddle Department 45 direct labour hours  $10 450
$1418
Exercise 7.25 (15 minutes) Volume-based cost driver versus ABC: manufacturer
1 Material handling cost per mirror:
$180000
60
( ) 500
( )+ 60
( ) 500
( )
é
ë ù
û*
´ 500 = $1500
* The total number of direct labour hours.
An alternative calculation, since both types of product use the same amount of the cost driver, is the
following:
$180 000
120*
= $1500
* The total number of units (of both types) produced.

9
2 Material handling cost per lens = $1500. The analysis is identical to that given for requirement 1.
3 Material handling cost per mirror:
$180 000
8 + 32
( )
*
´8
60
= $600
* The total number of material moves.
4 Material handling cost per lens:
$180 000
8 + 32
( )
*
´ 32
60
= $2400
* The number of material moves for the lens product line.
Exercise 7.26 (20 minutes) Normal costing; alternative denominator volumes: engineering
firm
1 Practical capacity will be greater than the actual volume of production. Overhead will be underapplied at the end
of the coming year. Job costs and tender quotes will be lower than their actual costs because the overhead cost
will be understated.
2 A change from practical capacity to the budgeted volume will increase the overhead rate and, therefore, increase
job costs and tender quotes. This will make it more difficult to win tenders.
3 If normal volume were used, by the end of this year actual production will be lower than the normal volume, as
the company is expected to be in the ‘trough’ of its normal business cycle. Overhead would be underapplied, but
not by as much as it would have been if practical capacity had been used as the denominator volume. Next year
the company will be in the peak of its two-year cycle and, if normal volume is used as the denominator volume,
overhead will be overapplied. Over the two-year cycle, the underapplied and overapplied overhead should even
out, assuming that actual production behaves as expected over its normal cycle.
Job costs and tender quotes under normal volume will be understated this year and overstated next year,
compared to their actual cost. The average cost over the two years should approximate the actual production
cost.
Exercise 7.27 (10 minutes) Direct method of support department cost allocation: bank
Direct customer service departments using services
Deposit Loan
Provider of service
Cost to be
allocated Proportion Amount Proportion Amount
Human Resources $ 720 000 (50/80) $ 450 000 (30/80) $270 000
Computing 1 200 000 (60/80) 900 000 (20/80) 300 000
Total $ 1 920 000 $1 350 000 $570 000
Grand total $1 920 000

10
Exercise 7.28 (15 minutes) Step-down method of support department cost allocation: bank
Human
resources Computing
Direct customer service departments
using services
Deposit Loan
Costs prior to allocation $720 000 $1 200 000
Allocation of Human Resources
Department costs $720 000 144 000 (2/10) $360 000 (5/10) $216 000 (3/10)
Allocation of Computing
Department costs $1 344 000 1 008 000 (60/80) 336 000 (20/80)
Total costs allocated to each
department $1 368 000 $552 000
Total cost allocated to direct
customer service departments
$ 1 920 000

11
Exercise 7.29 (25 minutes) Reciprocal services method of support department cost
allocation: bank
First, specify equations to express the relationships between the support departments.
Notation: H denotes the total cost of Human Resources
C denotes the total cost of Computing
Equations: H = 720 000 + 0.20C (1)
C = 1 200 000 + 0.20H (2)
Solution of equations: Substitute from equation (2) into equation (1).
H = 720 000 + 0.20(1 200 000 + 0.20H)
= 720 000 + 240 000 +0 .04H
0 .96H = 960 000
H = 1 000 000
Substitute the value of H into equation (2).
C = 1 200 000 + 0.20(1 000 000)
C = 1 400 000
Next, use the calculated total allocation figures in the cost allocation using the reciprocal services method:
Support departments Direct customer service departments
Human Resources Computing Deposit Loan
Traceable costs $720 000 $1 200 000
Allocation of Human
Resources Department costs (1 000 000) 200 000(0.2) $500 000(0.5) $300 000(0.3)
Allocation of Computing
Department costs 280 000(0.2) (1 400 000) 840 000(0.6) 280 000(0.2)
Total cost allocated to each
direct customer service
department $1 340 000 $580 000
Total costs allocated
$1 920 000
Exercise 7.30 (20 minutes) (appendix) Variable and absorption costing
1 Porter Ltd.
Income statement under absorption costing
Year ended 31 December
Sales revenue (36 000 units at $45/unit) $1 620 000
Less: Cost of goods sold (36 000  $35/unit)* 1 260 000
Gross margin 360 000
Less: Selling and administrative expenses:
Variable $108 000
Fixed 30 000
138 000
Net profit $222 000

12
2
PorterLtd
Contribution margin statement under variable costing
Year ended 31 December
Sales revenue (36 000 units at $45/unit) $1 620 000
Less: Variable expenses:
Variable manufacturing costs
(36 000  $27/unit) $972 000
Variable selling & administrative costs 108 000
1 080 000
Contribution margin 540 000
Less: Fixed expenses
Fixed manufacturing overhead $300 000
Fixed selling and administrative expenses 30 000
330 000
Net profit $ 210 000
* Assuming that the production of 25 000 units equalled the normal capacity, the fixed manufacturing overhead per unit is
$8 ($300 000/37 500 units).
3 (a) The absorption costing profit is higher because 1500 units produced are carried forward as finished goods
inventory. Each unit carries forward a cost of $8 for manufacturing overhead that is expensed under
variable costing. Therefore using the absorption costing method the costs in the income statement are
$12 000 lower than when using the contribution margin approach, where total fixed costs are expensed as
period costs.
(b) The short cut method is based on the change in closing inventory, which represents costs incurred in the
current period which will be released against future revenue. Where production is greater than sales (as in
this case) the higher value of closing inventory deducted from the cost of goods available for sale shows a
lower cost of goods sold— and, therefore, a higher gross profit. The calculation for this is shown below.
Increase (decrease)
in units in inventory

fixed manufacturing cost
per unit
= difference in profit
1500 units  $8 = $12 000 more under
absorption costing

13
SOLUTIONS TO PROBLEMS
Problem 7.31 (30 minutes) Plantwide and departmental overhead rates: manufacturer
Instructors please note before setting this problem: The actual overhead of $300 000 is for the whole plant (that is,
Fabrication plus Assembly Departments).
1 Total budgeted overhead = $270 000 + $135 000 = $405 000
Budgeted direct labour hours = 22 500 + 90 000 = 112 500
Predetermined overhead rate = $405 000/112 500 = $3.60 per direct labour hour
2 Laser:
31 500 hours  $3.60 = $113 400 (overhead)
[$113 400 + $90 000 (prime costs)]/11 250 units = $18.08 per unit
Inkjet:
93 000 hours  $3.60 = $334 800 (overhead)
[334 800 + $675 000 (prime costs)]/112 500 units = $8.98 per unit (rounded)
3 Departmental overhead rates:
Fabrication = $270 000/45 000 = $6 per machine hour
Assembly = $135 000/90 000 = $1.50 per direct labour hour
4 Laser:
Applied overhead = (15 000  $6) + (30 000  $1.50) = $135 000
Cost per unit = (135 000 + 90 000)/11 250 = $20 per unit
Inkjet:
Applied overhead = (30 000  $6) + (72 000  1.50) = $288 000
Cost per unit = $(288 000 + 675 000)/112 500 = $8.56 per unit
5 (a) Plantwide overhead rate:
Applied overhead (124 500 labour hours  $3.60) $448 200
Actual overhead 450 000
Underapplied overhead $1 800
(b) Departmental overhead rates:
Applied overhead (45 000 machine hours  $6) $270 000 in Fabrication
Applied overhead (102 000 labour hours  $1.50) $153 000 in Assembly
Total applied overhead $423 000
Actual overhead 450 000
Underapplied overhead $ 27 000
6 One would expect the departmental overhead rates to be the best approach. However, in this case the plantwide
rate results in less underapplied/overapplied overhead. Perhaps direct labour hours is a better cost driver for
‘Fabrication’ than machine hours. As the question does not identify the actual overhead costs for each
department separately, it is not possible to identify which department contributes most to the underapplied
overhead and, therefore, assess the appropriateness of each department’s cost driver.

14
Problem 7.32 (25 minutes) Predetermined plantwide overhead rate; different time periods;
pricing: manufacturer
1 (a)
Estimated
manufacturing
overhead
Estimated direct
labour hours
(DLHs)
Quarterly
predetermined
overhead rate
(per DLH)
First quarter $200 000 25 000 $8.00
Second quarter 160 000 16 000 $10.00
Third quarter 100 000 12 500 $8.00
Fourth quarter 140 000 14 000 $10.00
$600 000 67 500
(b) (i) & (ii) Part A200 produced January April
Direct labour rate per hour $30.00 $30.00
Number of DLHs per unit 20 20
Overhead rate per DLH $8 $10
Direct material 200 $200
Direct labour 600 $600
Overhead 160 $200
$960 $1 000
2 (a) January ($960 x 1.10) $1056
(b) April ($1000 x 1.10) $1100
3
Estimated
manufacturing
overhead
Estimated direct
labour hours
(DLHs)
Quarterly
predetermined
overhead rate
(per DLH)
First quarter $200 000 25 000
Second quarter 160 000 16 000
Third quarter 100 000 12 500
Fourth quarter 140 000 14 000
Totals $600 000 67 500 $8.89 (rounded)
4 (a) & (b) Part A200 produced January April
Direct material $200.00 $200.00
Direct labour 600.00 600.00
Overhead ( 20 DLH x overhead
rate of $8.89 per DLH) 177.80 177.80
$977.80 $977.80

15
5
Price is cost plus 10% markup
i.e. $977.80 x 1.10 $1075.58
6
The annual rate is preferred, as it averages out (that is, normalises) the effects of fluctuations in overhead costs and
cost driver volumes over the year. Notice that with quarterly overhead rates, the firm may underprice its product in
January and overprice it in April. Note also that an increase in prices in two quarters of the year could further decrease
demand for the product, which would then further increase its cost and price per unit.

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The order was obeyed, though the old negro knew that soon he
would be reprimanded as much for yielding to his master’s whim as
he had already been for opposing it.
“Doctor Mack knows everything,” said Josephine.
“Huh! Everybody belonging to you is perfect, I conclude,” said the
host, with some sarcasm.
“I don’t like him, though. Not very well. He gives me medicine
sometimes, though mamma says I don’t need it. I’m glad he’s gone
to eat those philopenas. Aren’t you?”
“I don’t care a rap where he goes,” answered Uncle Joe testily.
Josephine opened her eyes to their widest. This old man in the
soiled green dressing-gown, unshaven, frowning and wincing in a
horrible manner, was like another person to the handsome
gentleman with whom she had dined overnight. He was not half so
agreeable, and— Well, mamma often said that nobody in this world
had a right to be “cross” and make themselves unpleasant to other
people. She was sorry for poor Uncle Joe, and remembered that he
had not had the advantage of mamma’s society and wisdom.
“Uncle Joe, you look just like one of them picture-men that was shut
up in a tree trunk. You know. You showed them to me last night. I
wish you wouldn’t make up such a face,” she observed.
Mr. Smith’s mouth flew open in sheer amazement, while Peter tossed
his hands aloft and rolled his eyes till the whites alone were visible.
In all his service he had never heard anybody dare to speak so
plainly to his master, whose temper was none of the mildest. He
dreaded what would follow, and was more astonished than ever
when it proved to be a quiet:
“Humph! Children and fools speak truth, ’tis said. You’re a sharp-
eyed, unflattering little lady, Miss Josephine; but I’ll try to control my
ugly visage for your benefit.”
The tone in which this was said, rather than the words themselves,
was a reproof to the child, who immediately left her place, ran to her

uncle’s side, and laid her hand pleadingly upon his arm.
“Please forgive me, poor Uncle Joe. I guess that was saucy. I—I
didn’t think. That’s a way I have. I say things first, and think them
afterward. I guess it isn’t a nice way. I’ll try to get over that. My!
won’t that be fun? You trying not to make up faces, and I trying not
to say wrong things. I’ll tell you. Have you got a little box
anywhere?”
“Yes, I presume so. Go eat your breakfast, child. Why?”
“’Cause. Did you know there was heathens?” she asked gravely.
“I’ve heard so. I’ve met a few.”
“You have? How delightful!” came the swift exclamation.
“I didn’t find it so. Why, I say?” he inquired.
“Each of us that forgot and broke over must put a penny, a cent, I
mean, in the box. It must be shut tight, and the cover gum-
mucilaged down. You must make a hole in the cover with your
penknife, and when you screw up your face, just for nothing, you
put a penny in. I’ll watch and tell you. Then I’ll put one in when I
say wrong things. I’ve a lot of money in my satchel. Mamma and
Doctor Mack each gave me some to buy things on the way. But
there wasn’t anything to buy, and I can use it all, only for Rudanthy’s
new head. Can we go buy that to-day, Uncle Joe?”
“No. Nobody knows when I’ll get out again, if this weather holds.
The idea of a snowstorm like this in March. In March!” angrily.
“Yes, suh,” responded Peter respectfully, since some reply seemed
expected.
“Here, boy. Carry my mail to the library. Get a good heat on. Fetch
that old soft shawl I put over my foot when it’s bad, and, for
goodness sake, keep that child out of the way and contented,
somehow.”
Josephine had gone to the window, pulled the draperies apart, and
was looking out on a very different world from any she had ever

seen. White was every object on which her eye rested, save the red
fronts of the houses, and even these were festooned with snowy
wreaths wherever such could find a resting place. The scene
impressed and almost frightened her; but when, presently, it
stopped snowing, and a boy ran out from a neighboring house,
dragging a red sled through the drifts, her spirits rose. It had been
one long, long week since she had exchanged a single word with
any child, and this was an opportunity to be improved. She darted
from the room, sped to the hall door, which stood ajar for Lafayette’s
convenience in clearing off the steps, and dashed outward.
Her feet sank deep into the cold, soft stuff, but she didn’t even
notice that, as she cried, eagerly:
“Little boy! Oh, little boy! Come here quick! I want somebody to play
with me.”
A moment’s pause of surprise, that a child should issue from “old Mr.
Smith’s,” and the answer came cheerily back:
“Wish I could; but I’m going sledding.”
“I’ll go with you! I never went a-sledding in all my”—
The sentence was never finished, for somebody jerked her forcibly
back within doors just as a great express wagon crawled to a pause
before the entrance.

CHAPTER VI.
MEMORIES AND MELODIES.
“My trunk! my trunk! My darling little blue trunk!”
“Massa Joe says for you to go right straight back to the library,
missy. He says you done get the pneumony, cuttin’ up that way in
the snow, and you not raised in it. He says not to let that boy in
here. I—I’s sorry to disoblige any little lady what’s a-visitin’ of us,
but”—
“It’s my trunk, Peter. Don’t you hear?”
“Yes, missy. But Lafayette, that’s his business, hauling luggage. I’se
the butler, I is.”
Josephine retreated a few paces from the door. She had lived in the
open air, but had never felt it pinch her nose as this did. Her feet,
also, were cold, and growing wet from the snow which was melting
on them. But Peter was attending to that. He was wiping them
carefully with his red handkerchief, and Josephine lifted first one,
then the other, in silent obedience to his touch. But her interest was
wholly in the trunk, which had now been deposited in the vestibule,
and from which Lafayette was carefully removing all particles of
snow before he carried it up over the carpeted stair.
Mr. Smith limped to the library door and looked out. He had meant
to send word that the trunk should be retained at the railway station
for the present, or until he should find out to whom Josephine had
really been “consigned,” and asked, in vexation:
“Come already, has it? Humph! If it had been something I wanted in
a hurry, they’d have taken their own time about delivering it. Said
they couldn’t handle goods in a storm, and such nonsense. I don’t

see, Peter, as it need be taken upstairs. Have it put in the storeroom,
where it will be handier to get at when she leaves.”
Both Peter and Josephine heard him with amazement.
“What is that, Uncle Joe? That ‘when I leave.’ Have I—have I been
so—so saucy and forgetful that—that you can’t let me stay?”
“No, no, child. I merely meant— There, don’t look so distressed. You
are here for the day, anyway, because none of us can go trudging
about in such weather. I’ll telephone for— There. No matter. It’s
right. It’s all right. Don’t, for goodness sake, cry. Anything, anything
but that. Ugh! my foot. I must get out of this draught,” he almost
yelled.
Josephine was very grave. She walked quietly to Uncle Joe’s side,
and clasped the hand which did not hold a cane with both her own.
“It’s dreadful funny, seems to me. Aren’t we going to stay in this
house all the time? I wish—I’m sorry I spoke about the box and the
heatheny money. But if you don’t mind, I must, I must, get into my
trunk. The key is in my satchel in my room. Mamma put it there with
the clean clothes I wore last night. She said they would last till the
trunk came; but that as soon as ever it did I must open it and take
out a little box was in it for you. The very, very moment. I must
mind my mamma, mustn’t I?”
“Yes, child, I suppose so,” he slowly returned.
Mr. Smith was now in his reclining chair, with his inflamed foot
stretched out in momentary comfort. He spoke gently, rather sadly,
in fact, as he added:
“My child, you may open your trunk. I will never counsel you to do
anything against your mother’s wishes. She seems to be a sensible
woman. But there has been a mistake which I cannot understand. I
am Joseph Smith. I have lived in this house for many years, and it is
the street and number which is written on the tag you showed me.
Do you understand me, so far?”
“Course. Why not?”

“Very well. I’m sorry to tell you that I have no twin brother, no ‘sister
Helen,’ and no niece anywhere in this world. I have many cousins
whom I distrust, and who don’t like me because I happen to be
richer than they. That’s why I live here alone, with my colored ‘boys.’
In short, though I am Joseph Smith, of number 1000 Bismarck
Avenue, I am not this same Joseph Smith to whom your mamma
sent you. To-morrow we will try to find this other Joseph Smith, your
mislaid uncle. Even to-day I will send for somebody who will search
for him in my stead. Until he is found you will be safe with me, and I
shall be very happy to have you for my guest. Do you still
understand? Can you follow what I say?”
“Course,” she instantly responded.
But after this brief reply Josephine dropped down upon the rug and
gazed so long and so silently into the fire that her host was impelled
to put an end to her reflections by asking:
“Well, little girl, of what are you thinking?”
“How nice it would be to have two Uncle Joes.”
“Thank you. That’s quite complimentary to me. But I’m afraid that
the other one might prove much dearer than I. Then I should be
jealous,” he returned, smiling a little.
Josephine looked up brightly.
“I know what that means. I had a kitten, Spot, and a dog, Keno; and
whenever I petted Spot Keno would put his tail between his legs and
go off under the sofa and look just—mis’able. Mamma said it was
jealousy made him do it. Would you go off under a table if the other
Uncle Joe got petted? Oh! I mean—you know. Would you?”
Though this was not so very lucid, Mr. Smith appeared to
comprehend her meaning. Just then, too, a severe twinge made him
contort his features and utter a groan.
Josephine was on her feet and at his side instantly, crying out:

“Oh, does it hurt you so dreadful much? Can’t I do something for it?
I can bathe feet beautiful. Bridget sprained her ankle and mamma
let me bathe it with arnica. Big Bridget said that was what cured it
so quick. Have you got any arnica? May I bathe it?”
“Would you really handle a red, unpleasant, swollen old foot and not
dislike it?”
“I guess I shouldn’t like it much. I didn’t like big Bridget’s. I felt
queer little feelings all up my arm when I touched it. She said it hurt
me worse than it did her. But I’d do it. I’d love to do it even if I
didn’t like it,” she answered bravely.
“Peter, fetch the arnica. Then get a basin of hot water,” he ordered.
The pain was returning with redoubled force, and Mr. Smith shut his
lips grimly. He looked at Josephine’s plump little hands, and felt that
their touch might be very soothing; as, indeed, it proved. For when
the servant brought the things desired, the little girl sat down upon
the hassock beside the great chair and ministered to him, as she had
done to big Bridget. The applications were always helpful, but the
tender strokes of her small fingers were infinitely more grateful than
the similar ministrations of the faithful, yet hard-handed, Peter.
“Now I’ll put it to bed, as if it were Rudanthy. Poor Rudanthy! How
bad she must feel without any face. That’s worse than having a sore
foot, isn’t it?” as she heaped the coverings over the gouty toes.
“Far worse. Only waxen faces are not subject to pain.”
“I s’pose not. Now, Uncle Joe, would you like me to sing to you?”
“Can you sing?”
“Course. Mamma sings beautifully. She is the leader in our choir. My
papa says she makes him think of angels when she sings. I don’t
sing like her. Course not. But I can do some things, if you like me
to.”
“What about the trunk, Josephine? Though I really think you would
better leave it packed pretty nearly as it is, since”—

“Uncle Joe, I’ve been thinking about that other uncle we’ve lost. If
he isn’t nice, and mamma will let me, I’ll stay with you.”
He did not dampen her spirits by suggesting that she would better
wait for him to ask her to stay, and merely answered:
“Well, time will show what’s best. Shall Peter unlock that trunk?”
Mr. Smith did not wish to break into anybody’s confidence; yet, since
she had spoken of a box destined for the mislaid “Uncle Joe,” he felt
that he would be justified in examining, at least, the outside of it.
Josephine went away with the old colored man, but did not tarry
long. The tin box was very near the top of the trunk, and she was in
haste to give it to her patient, to whom she explained:
“I know what’s in it. Nothing but some California flowers. Mamma
said that you would like them, even if they faded a little. But she
hoped they wouldn’t fade. The box is tight, like the big one she and
papa take when they go botanizing. Mamma is making a collection
of all the flowers she can and putting them in a big, big book. She
knows their names and all about them. Mamma knows—everything.”
“I begin to think so, too, little girl. I never before heard of so much
virtue and wisdom shut up in one woman. Yes, I see. The box is
addressed exactly like the tag. Still, I do not feel I have a right to
open it, for it is sealed, you see.”
“That’s only paper. It is to keep out the air. The air is what spoils
things like violets. Please do open it, or let me. Mamma would be so
dreadfully disappointed if you didn’t. Why, think! We were in that
terrible hurry, yet she took time to fix it. She hadn’t seen you in so
many years, she said, and so she must send it. Please.”
“But I am not the ‘you’ she meant, you know, Josephine.”
“Well, you’re somebody, aren’t you? You’re my Uncle Joe, anyway,
whether you’re the regular one or not. Shall I?” and she held the box
edgewise, ready to tear the strip of paper which fastened its edges.

“Y-es, I suppose so. It may lead to the explanation of this riddle,” he
assented.
As the little girl had said, there was nothing whatever in the tin box
except a quantity of violets, with some of the wild blossoms that
brighten the mesas in spring-time, and one tiny scrap of paper, on
which was written, in evident haste
“Dear Brother Joe: Let these violets tell
you all that I would say; and, as you are
good to our little one, may God be good
to you.
“Helen.”
“Well, there’s no great injury done anybody by that deed, I think.
We’ll put the note back in the box and the flowers in water. When
the mislaid Joseph arrives we’ll restore him his property in the best
shape we can,” said Mr. Smith.
Peter listened, surprised. His master was almost mirthful, and that,
too, even during an attack of his dreaded malady. If this were the
effect of Josephine’s presence, he hoped that she would remain;
though he was shrewd enough to comprehend, from Mr. Smith’s
words, that this was doubtful.
“The worst I hopes about it is that that other out-of-the-way Joe
Smith turns out a wuthless creetur’ that Massa Joe won’t be trustin’
little missy with. I ain’t a-wishin’ nobody no harm, I ain’t, but I’se
powerful willin’ the mislaid uncle stays lost forever. Yes, suh,” he
assured his fellow-servants.
The violets were in a cut-glass bowl which Peter received no
reprimand for bringing, though it was the choicest piece in his
master’s possession, but, as the old man reasoned: “The fittenest
one for posies what had travelled in a little gell’s trunk, all the way
from Californy.” The gouty foot had ceased to torment its owner; the
street without was utterly quiet; the fire glowed in the grate, and its
glow was reflected in a lonely old man’s heart as on the happy face
of a little girl who nestled beside him. He remembered her statement

that she could sing, but he had been musical in his own day and
shrank from discord. Could a child so young make real melody? He
doubted it, yet it was now his intention to make her as happy as it
lay in his power to do, for the brief while that he might keep her;
and he recalled her mother’s written words:
“As you are good to our little one, may God be good to you.”
So he forced himself to say:
“If you want to sing now, Josephine, I will listen.”
It wasn’t a very gracious request, but the other did not notice that.
The sight of the home flowers had brought back a crowd of happy
memories, and without delay she began:
“Maxwelton braes are bonny,
Where early fa’s the dew,”
and had not proceeded thus far before the old Virginian had raised
himself upright in his chair and was listening with all his keenly-
critical ears to the sweetest music he had ever heard.
Josephine sang for love of singing. She could no more help it than a
bird could, for song came to her as naturally as to it. Her voice was
birdlike, too, in its clearness and compass, and true in every note.
“Do you like that song, Uncle Joe?” she asked.
“Like it? It’s wonderful. Child, who trained you?”
“I—why, I’ve just sung with mamma; though papa says that when I
am older, if he is able, I shall have other teachers. I don’t think
anybody can be better than mamma, though,” she answered.
“Something else, little girl,” came the prompt request.
It was as pure enjoyment to her as to him. She sang whatever came
to her mind, and many old ballads suggested by himself. With each
one he grew more enthusiastic, and finally called Peter to bring him
his flute.

By this time that bewildered creature was prepared for anything.
When he and Massa Joe had been young, music and the flute had
been their mutual delight. But it was years and years since that
ancient instrument had been breathed upon, though it always lay,
wrapped in its swaddling clothes, convenient to its owner’s desk.
Alas, when it was brought, it uttered but the ghosts of former
melodies, yet nobody in that small company was the sadder for that.
The unusual sounds stole through the house, bewitched Lafayette
from his cleaning and Apollo from his range. Open-eyed, they stood
without the library door and wasted their time, with none to reprove;
because, for once, the sharp eyes of the major-domo, Peter, were
bent upon a more delectable sight.
Into the midst of this happy scene came the discordant ring of the
electric bell, and instantly all other sounds ceased.
“Who in the world would trespass upon us, on such a day as this!”
cried Mr. Smith, at last arousing from the unusual mood into which
he had been betrayed by Josephine’s sweet voice.
“Maybe it’s company, Uncle Joe.”
“No company comes here without invitation, child.”
“I came, didn’t I? But we didn’t know that, then.”
“Business, I suppose. Always business; and to-day I’m unfitted for
all business.”
Business, indeed. For there was ushered into the room, by the
frowning Peter, the man whom of all others his master now least
wished to see.

CHAPTER VII.
THE BOY FROM NEXT DOOR.
The unwelcome visitor was a Mr. Wakeman, confidential clerk and
business manager, under Mr. Smith, of that gentleman’s many vast
enterprises. He was an alert young man, rather jaunty of dress and
manner, and almost too eager to please his employer.
“Good morning, Mr. Smith.”
“Morning. Terrible prompt, aren’t you!”
“I’m always prompt, sir, if you remember.”
The stranger had brought an air of haste and unrest into the quiet
library, and its owner’s comfort was at an end. He moved suddenly
and his foot began to ache afresh. Even Josephine sat up erect and
smoothed the folds of her red frock, while she gazed upon Mr.
Wakeman’s face with the critical keenness of childhood. On his part,
he bestowed upon her a smile intended to be sweet, yet that
succeeded in being merely patronizing.
“Good morning, sissy. Didn’t know you had any grandchildren, Mr.
Smith,” he remarked.
“Haven’t. Of course,” was the retort.
“Beg pardon. I’d forgotten, for the moment, that you were a
bachelor. I got your telephone message,” said the clerk.
“Naturally.”
“Thought I’d best see you personally before conducting the
inquiries,” went on the young man.
“Unnecessary. Repeat the message you received.”

Mr. Wakeman fidgetted. He realized that he had been over-zealous,
but proved his reliability by saying: “‘Find out if there’s another
Joseph Smith in town whose residence number resembles mine.’”
“Hmm. Exactly. Have you done so?” demanded the employer.
“Not yet. As I was explaining”—
“Explanations are rarely useful. Implicit obedience is what I require.
When you have followed my instructions bring me the results. I—I
am in no especial haste. You needn’t come again to-day. To-morrow
morning will answer. Peter, show the gentleman out.”
But for once Peter was not on hand when wanted. Commonly, during
an attack of gout, he kept as close to his master as that exacting
person’s “own shadow.” The old man now looked around in surprise,
for not only had Peter, but Josephine, disappeared. There were also
voices in the hall, and one of these was unfamiliar.
“Peter! Peter!” he called, and loudly.
“Yes, Massa Joe. Here am I,” answered the butler, reappearing.
“Who’s out yonder?”
“A—er—ahem!—the little boy from next door, suh.”
“That rough fellow? What’s he want?”
“He, I reckon, he’s just come to call on our Miss Josephine, suh.”
Mr. Smith leaned back in his chair, overcome by astonishment, and
Mr. Wakeman quietly slipped away.
“Send her back in here,” ordered the master of the house.
The little girl came, attended by a red-headed lad, somewhat taller
than herself, with whom she had already established a delightful
intimacy; for she held fast to his hand and beamed upon him with
the tenderest of smiles as she cried:
“Oh, Uncle Joe! Here’s Michael!”
“Huh! Well, Michael, what’s wanted?”

“Josephine, Mr. Smith,” returned the lad.
“Michael, Josephine! How long have you two been acquainted?”
“About five minutes, I guess,” answered the manly little chap, pulling
a battered silver watch from his jacket pocket. The watch was minus
a crystal and he calmly adjusted the hands with one red little finger
as he announced the hour. “It was just eleven o’clock when I rang
the bell, and it’s six minutes past now, Mr. Smith.” Then he shook up
his timepiece, generously held it toward Josephine and informed
her: “It goes best when it’s hung up sidewise. I’ve had it ever so
long. ’Most six months, I reckon.”
“And I’ve had my watch sixteen years,” remarked Mr. Smith,
displaying his own costly chronometer, with its double dials and
elegant case. “But I should never think of using it as you do yours.
Well, what’s wanted with Josephine?” he asked, with an abrupt
change.
“I’d like to take her sledding,” explained the visitor.
“Well, you can’t. She doesn’t belong to me, and I never lend
borrowed articles.”
The countenances of both children fell.
“What put it into your head to come here, anyway?” demanded Mr.
Smith.
“She did,” answered Michael.
“Josephine? How could she?”
“She saw me when I started out, before the sidewalks were
shovelled, and hollered after me. I couldn’t stop then, ’cause I was
going to meet another fellow. When I went in to get a cracker I told
my grandmother that there was a little girl in here and she wouldn’t
believe it. She said”—
Michael paused with so much confusion that his questioner was
determined to hear just what the lady had remarked, and ordered:

“Well, go on. Never stop in the middle of a sentence, boy.”
“Not even if the sentence isn’t—isn’t a very polite one?”
“What did she say?” repeated Mr. Smith.
“She said you were too selfish and fussy to allow a child within your
doors,” said the boy, reluctantly.
“You see she was mistaken, don’t you?”
“Yes, Mr. Smith. I explained it to her. I said she must be a visitor, and
grandma thought in that case she’d be very lonely. She sent me in to
ask permission to take her a ride around the park on my sled. We
don’t often have such nice sledding in Baltimore, you know, Mr.
Smith.”
“And, Uncle Joe, I was never on a sled in all my whole life!”
entreated Josephine, folding her hands imploringly.
“No, sir, that’s what she says. She’s a Californian, from away the
other side the map. Where the oranges come from. Say, Josephine,
did you bring any oranges with you?” inquired Michael.
“Not one,” said the little girl, regretfully. “I guess there wasn’t time.
Mamma and big Bridget had so much packing to do, and Doctor
Mack prob’ly didn’t think. I wish I had. I do wish I had.”
“There are plenty of oranges in this city, child. I presume Peter has
some now in his pantry. You may ask him, if you like,” said Mr.
Smith.
Peter didn’t wait for the asking, but disappeared for a few moments,
then to return with a dish of them and place them on the table. The
eyes of both children sparkled, for it was the finest of fruit, yet they
waited until the butler had brought them plates and napkins before
beginning their feast. This little action pleased the fastidious old
gentleman, and made him realize that small people are less often ill-
bred than he had hitherto imagined them to be. He had based his
opinion upon the behavior of some other little folks whom it had
been his misfortune to meet upon cars or steamboats, who seemed

to be always munching, and utterly careless where their crumbs or
nutshells fell. This pair was different.
Indeed, had the host known it, Michael had been reared as daintily
as Josephine had been. “Company manners” were every-day
manners with him, and it was one of Mr. Smith’s beliefs that
“breeding shows more plainly at table than anywhere else.” He
watched the boy with keenness, and it was due to his present
conduct, of which the lad himself was unconscious, that final
consent was given to Josephine’s outing.
Selecting an orange the boy asked:
“Shall I fix it for you?”
“If you please,” answered the little girl.
Michael cut the fruit in halves, placed it on a plate, laid a spoon
beside it, and offered it to Josephine, who received it with a quiet
“Thank you,” and began at once to take the juice in her spoon.
When each had finished an orange they were pressed to have a
second, and the boy frankly accepted, though the girl found more
interest in this young companion than in eating.
“It makes a fellow terribly hungry to be out in the snow all morning,
Mr. Smith. Seems as if I was always hungry, anyway. Grandma says I
am, but I reckon she doesn’t mind. Oh! I forgot. Why, she sent you
a note. I never do remember things, somehow.”
“Neither do I,” said Josephine, with ready sympathy.
“You ought to, then. Girls ought to be a great deal better than boys,”
answered Michael.
“Why?”
“Oh, because. ’Cause they’re girls, you know.”
Uncle Joe looked up from reading the brief, courteous note and felt
that that, added to the boy’s own manner, made it safe for him to
entrust his guest to Michael’s care for a short time.

“Very well, Josephine. Mrs. Merriman, my neighbor, whom I know
but slightly, yet is kind to you, requests that I allow you to play with
her grandson for an hour. You may do so. But put on your cloak and
hat and overshoes, if you have them.”
“I haven’t, Uncle Joe. But I don’t need them. My shoes are as thick
as thick. See? Oh, I’m so glad. I never rode on a red sled in all my
life, and now I’m going to. Once my papa rode on sleds. He and you
—I mean that other uncle, away up in New York somewhere. He’s
seen snow as high as my head, my papa has. I never. I never saw
only the teeniest-teeniest bit before. It’s lovely, just lovely. If it
wasn’t quite so cold. To ride on a sled, a sled, like papa!”
Josephine was anything but quiet now. She danced around and
around the room, pausing once and again to hug her uncle, who
submitted to the outbursts of affection with wonderful patience,
“considerin’,” as Peter reflected.
“What did you ride on, the other side the map?” asked Michael,
laying his hand on her arm to stop her movements.
“Why—nothing, ’xcept burros.”
“Huh! Them! Huh! I ride a regular horse in the summer-time, I do.
Go get ready, if you’re going. I can’t stand here all day. The fellows
are outside now, whistling. Don’t you hear them?”
“But I said she might go with you, because you are—well, your
grandmother’s grandson. I didn’t say she might hob-nob with Tom,
Dick and Harry.”
Michael fidgetted. The whistling of his comrades had already put
another aspect on the matter. So long as there were no boys in sight
to play with, he felt that it would be some fun to play with even a
girl; especially one who was so frank and ready as she whom he had
seen in Mr. Smith’s doorway. But now the boys were back. They’d
likely laugh and call him “sissy” if he bothered with Josephine, and
what fellow likes to be “sissied,” I’d wish to know!

Josephine felt the change in his manner, and realized that there was
need for haste, yet, fortunately, nothing deeper than that. It never
occurred to her that she could be in anybody’s way, and she
returned to the library very promptly, her red hat thrust coquettishly
on one side of her head, and her coat flying apart as she ran. She
was so pretty and so eager that the red-headed boy began to feel
ashamed of himself, and remembered what his grandmother often
told him: that it was the mark of a gentleman to be courteous to
women. He was a gentleman, of course. All his forefathers had
been, down in their ancient home in Virginia, which seemed to be
considered a little finer portion of the United States than could be
found elsewhere. Let the boys jeer, if they wanted to. He was in for
it and couldn’t back out. So he walked up to Josephine who was
giving Uncle Joe a parting kiss, and remarked:
“I’ll button your coat. But put your hat on straight. It won’t stay a
minute that way, and when I’m drawing you, I can’t stop all the time
to be picking it up. Where’s your gloves? Forgot ’em? Never mind.
Here’s my mittens. Ready? Come on, then. Good morning, Mr. Smith.
I’ll take good care of her and fetch her back all right.”
He seized Josephine’s hand, lifted his cap, dropped it over his red
hair, and darted from the house.
A group of lads, his mates, had congregated before the house,
recognizing his sled upon the steps, and wondering what could have
sent him into that forbidding mansion. They were ready with
questions and demands the instant he should appear, but paused,
open-mouthed, when he did actually step out on the marble, leading
Josephine. He was not “a Virginian and a gentleman” for nothing.
Instinct guided his first words:
“Hello, boys! This is Josephine Smith, from San Diego, California.
She’s never seen snow before, worth mentioning, and I’m going to
give her a sleighride. Her first one. S’pose we make it a four-in-
hand, and something worth while? What say?”
“Will she be afraid?” asked one of them.

“Are you a ’fraid-cat, Josephine?” demanded Michael, sternly, in a
don’t-you-dare-to-say-you-are kind of voice, and the little Californian
rose to the occasion gallantly.
“No, I am not. I’m not afraid of anything or anybody—here.”
“Come on, then.”
Ropes were unhitched from another sled and tied to lengthen that
on Michael’s, while he and another carefully placed the little
passenger upon the “Firefly,” bade her “Hold on tight!” and shouted:
“Off we are! Let her go, boys, let her go!”
Then began not one hour, but two, of the wildest sport the old
square had ever witnessed. The walks traversing it had already been
cleared of the snow, but for once there was no restricting “Keep off
the grass” visible.
The park was like a great, snowy meadow, across which the four
lads darted and pranced, at the risk of many upsets, their own and
Josephine’s, who accepted the plunges into the banks of snow
heaped beside the paths with the same delight she brought to the
smoother passages, where the sled fairly flew behind its hilarious
“four-in-hands.”
Pedestrians crossing the square were gayly informed that this was “a
girl who’d never seen snow before, and we’re giving her enough of it
to remember!” Michael was leader, as always, and he led them a
merry round, shouting his orders till he was hoarse, losing his cap
and forgetting to pick it up, his red head always to the fore, and his
own enjoyment intense.
As for Josephine—words fail to express what those two hours were
to her. The excitement of her new friends was mild compared to her
own. The snow sparkling in the sunlight, the keen frosty air, the
utter enchanting newness of the scene, convinced her that she had
entered fairyland. Her hat slipped back and hung behind her head,
her curls streamed on the wind, her eyes gleamed, her cheeks grew
rosy, and her breath came faster and faster, till at last it seemed that
she could only gasp.

Just then appeared old Peter, holding up a warning hand, since a
warning voice would not be heard. The four human ponies came to
a reluctant pause, stamping their feet and jerking their heads after
the approved manner of high-bred horses, impatient of the bit.
“For the land sakes, honey! You done get your death! You’se been
out here a right smart longer’n Massa Joe told you might. You come
right home with me, little missy, now, if you please,” said the butler.
“We’ll draw her there, Peter. Why, I didn’t know we’d been so long,”
apologized Michael.
“Thought you was a young gentleman what carried a watch!”
“So I am, old Peter,” then producing that valuable timepiece he
turned it on its side, studied its face, and informed his mates: “Half-
past one, fellows, and my grandmother has lunch at one! Whew!
Home’s the word!”

CHAPTER VIII.
AFTER THE FROLIC.
Reaction followed excitement. Josephine had never been so tired, no,
not even during her long railway journey. She had laughed and
shouted till her throat ached; her eyes were still dazzled by the
gleam of sunlight upon snow; and her clothing was wet through.
She stepped from the “Firefly” and climbed the cold marble stoop,
holding on to Peter’s hand as if without its aid she could not have
mounted it at all. She allowed him to take off her hat and cloak,
without protesting that she liked to do things for herself, and sat
down by the register with a shiver of content.
“Tired, little missy?”
“Terrible tired, Peter, thank you.”
“Massa Joe’s takin’ his luncheon, Miss Josephine.”
“Is he?” she asked indifferently.
“Reckon you better come get yours. Massa Joe don’t wait for
nobody, he don’t. Less’n ever when he’s got the gout on. Better
hurry, maybe, honey,” urged the butler.
Josephine rose, observed that she must go wash her hands and fix
her hair before she could go to table, and wearily ascended the
stairs to her own grand room. Once there the bed looked so inviting,
despite its great size, that she climbed upon it and dropped her hot
face on the cool pillow. She forgot to remove her wet shoes, nor
thought how her dampened clothing might stain the delicate lace
spread. She meant to stay there for a moment only, “Just till my
eyes get right,” but she fell asleep almost instantly.
She did not notice that the window was open, nor that the heat had
been turned off, the better to warm the library below. She noticed

nothing, in fact, till some time later when old Peter shook her
sharply, exclaiming still more indignantly:
“For land, honey, don’t you know no better’n go sleepin’ with your
window open right here in March? ’Tisn’t your fault, missy, if you
don’t done ketch the pneumony. Massa Joe says for you to come
downstairs. Little gells what live to his house must learn not to keep
table waitin’, less’n they can’t stay. Better get up, Miss Josephine.”
She obeyed him, but shivered afresh as she did so. The next
moment she was so warm she ran to the window and thrust her
head out of it. Peter drew her back and closed the sash with a bang.
Then he led her to the washstand and made a futile attempt to
brush her tangled curls.
“Never mind, good Peter. I can do it. I’m sorry I went to sleep. Has
Uncle Joe wanted me?” she interrupted.
“Reckon he has, honey. He done suffer terrible. He like to hear you
sing them songs again, likely.”
“Well, I will, if I’m not too tired,” she answered.
The butler looked at her anxiously. Was she going to be sick? If she
were, whatever could he do with her? A sick man—that was one
thing; but a sick little girl, that was quite another matter. She would
have to go, he feared, and to lose her now would seem very hard.
After all, she did not appear ill. She laughed and apologized so
sweetly to her would-be-angry host that he forgot his indignation
and forgave her on the spot. Only warned her gravely that he was a
man who meant exactly what he said, and intended anybody
belonging to him should do the same. One hour was never two; and,
in case they never came across that missing uncle of hers, he
supposed she would have to stay where she was until such time as
her own parents could claim her; ending his lecture with the
question:
“Would she remember?”

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