Business Finance
Purdue University Razorback Remedies Activity Based Costing System Calculations

Purdue University Global

Question Description

Need help with my Accounting question - I’m studying for my class.

Razorback Remedies produces a natural allergy treatment in tablet form.The company sells large containers of 1,000 tablets to university health centers and small containers of 50 tablets to health food stores.The company is considering adopting an activity-based costing system and the accountant gathered the following information

Activity

Estimated Indirect Cost

Cost Driver

Estimated Activity

Materials handling

$350,000

Pounds

58,000 pounds

Packaging

500,000

Machine Hours

8,000

hours

Quality control

250,000

Number of Samples

6,000

samples

Total indirect costs

$1,100,000

Other production information follows:

Large Containers

Small Containers

Units produced

20,000

180,000

Weight in pounds

40,000

18,000

Machine hours

6,000

2,000

Number of samples

1,000

5,000

Required

  • Razorback’s current system allocates indirect cost to products on the basis of machine hours.Calculate the predetermined overhead application rate per machine hour.
  • Use the overhead application rate per machine hour to compute the indirect cost applied to each product line (large containers and small containers).In addition, calculate the indirect cost per unit for large and small containers.
  • Assuming the company wants to convert to an activity-based system, calculate the cost per unit of cost driver for each activity in the first chart above.
  • Use the cost per unit of cost driver to compute the indirect cost applied to each product line (large containers and small containers).In addition, calculate the indirect cost per unit for large and small containers.
  • Compare the indirect activity-based cost per unit to the indirect cost per unit from the current (traditional) system.How have unit costs changed?Explain why the costs changed as they did.
  • Should Razorback convert to activity-based costing?Provide an appropriate justification for your decision.

Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool's honor code & terms of service.

Final Answer

Here you go :)

Activity

Materials
Handling

Packaging
Quality
Control
Total
Indirect
Costs

Estimated
Indirect cost

Cost Driver

$

350,000 Pounds

$

Machine
500,000 Hours

$

Number of
250,000 Samples

Estimated
Activity

Pre-Determined Overhead Rate Work

58,000

Estimate of total indirect
cost/overhead

8,000

Estimated number of
machine hours

6,000

Pre-Determined Overhead
Rate

$ 1,100,000
Indirect Cost to Large
Containers
Large
Containers

Units
Produced
Weight in
pounds

Machine
hours
Number of
samples

20,000

Small
Containers

6,000
$

137.50

18,000

Total
Indirect Cost $

825,000

6,000

2,000

Total
Indirect Cost
Per Unit
$

41.25

1,000

5,000

40,000

180,000

Number of
Machine
Hours
Overhead
Rate

d Overhead Rate Work

Cost per unit of cost driver
Cost of
Materials
Handling per
pound
$
6.03
Cost of
packaging per
hour
$
62.50
Cost of quality
control per
sample
$
41.67

$ 1,100,000

8,000

$

137.50

Indirect Cost
Large

Indirect Cost to Small
Containers

$

$

$

Indirect Cost
Small

2,000

Materials
Handling

$ 241,379.31 $ 108,620.69

137.50

Packaging

$

Quality
Control

$ 41,666.67 $ 208,333.33

275,000

1.53

375,000 $

125,000

Total Indirect
Cos...

svantass (386)
Rice University

Anonymous
Solid work, thanks.

Anonymous
The tutor was great. I’m satisfied with the service.

Anonymous
Goes above and beyond expectations !

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4