It seems that one 'Excused exercises' grade item should be sufficient for the exercises part. Simply record in it the number of excused exercises, 1-11, and if you want to keep track of which exercises you can record their numbers in the feedback of the item. Of course the extreme case of 11 excuses will mess up the formula (div by 0) but there shouldn't be too many of those.
It also seems that you can omit the hidden Exercises.overall grade item and simply do the calculation in the category total of the Exercises category. The formula would be something like: sum(Ex1,Ex2,...,Ex11)/(11-Exercises.Excused)
I don't know why it gives the invalid formula error. Could you post a screenshot?