Need help with an Accounting Homework Question Below

Nov 11th, 2015
Sigchi4life
Category:
Accounting
Price: $15 USD

Question description

Corbertt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health-care facilities
and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system
would be beneficial:
   
Activity Estimated Indirect Activity
Costs
Allocation Base Estimated Quantity of
Allocation Base
   
Materials handling $95,000 Kilos 19,000 kilos    
Packaging 219,000 Machine hours 5,475 hours    
Quality assurance 124,500 Samples 2,075 samples    
Total indirect costs $438,500        
           
Other production information includes the following:        
     
Commercial Containers Travel Packs      
Units produced 3,500 containers 57,000 packs      
Weight in kilos 14,000 5,700      
Machine hours 2,625 570      
Number of samples 700 855      
           
Requirements:
1. Compute the cost allocation rate for each activity.
2. Use the activity-based cost allocation rates to compute the activity costs per unit of the commercial containers and the travel packs. (Hint: First compute the total activity
cost allocated to each product line, and then compute the cost per unit.)
3. Corbertt's original single-allocation-base costing system allocated indirect costs to produce at $157 per machine hour. Compute the total indirect costs allocated to the
commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product.
4. Compare the indirect activity-based costs per unit to the indirect costs per unit from the single-allocation-base system. How have the unit costs changed? Explain why the
costs changed.

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