Question

Homework: Chapter 19 Homework Score: 0.18 of 1 pt P19-33A (similar to) • 2 of 5 (3 complete) HW Score: 28.06%, 1.4 of 5 Question Help Jacobson Pharmaceuticals manufacturers 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 station and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial: (Click the icon to view the information.) Read the requirements. Requirement 1. Jacobson's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $140.00 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. Round to two decimal places. Select the formula, and then enter the amounts to compute the indirect cost per unit for each product. (Abbreviation used: mfg. = manufacturing. Round dollar amounts to two decimal places.) = Indirect cost per unit 0 Data Table i Requirements - X Activity Estimated Indirect Costs Allocation Base $ 96,000 Number of kilos 210,000 Number of machine hours Estimated Quantity of Allocation Base 24,000 kilos 3,000 hours Materials handling Packaging Quality assurance 114,000 Number of samples 1,900 samples 1. Jacobson's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $140.00 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. Round to two decimal places. 2. Compute the predetermined overhead allocation rate for each activity 3. Use the predetermined overhead allocation rates to compute the activity-based costa per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint First compute the total activity-based costs allocated to each product line, and then compute the cost per unit) 4. Compare the indirect activity-based costs per unit to the indirect costa per unit from the traditional system. How have the unit costs changed? Explain why the costs changed. $ 420,000 Total indirect costs Actual production Information includes the following: Units produced Weight in kilos Commercial Containers 2,000 containers 10,000 1,600 200 Travel Packs 51,000 packs 5,100 510 765 Print Done Machine hours Number of samples TTEITETIT

Answer 1

1.

	Allocated mfg. OH cost	/	Number of units	=	Indirect cost per unit
Commercial containers ($140 x 1600)	$                              224,000	/	2,000	=	$                               112.00
Travel Packs ($140 x 510)	$                                  71,400	/	51,000	=	$                                   1.40

2.

Activity	Estimated Indirect Costs	/	Estimated Allocation Base	=	Predetermined OH allocation rate
Materials handling	$                                  96,000	/	24,000	=	$                                         4
Packaging	$                              210,000	/	3,000	=	$                                       70
Quality assurance	$                              114,000	/	1,900	=	$                                       60

3.

Commercial Containers
Activity	Predetermined OH allocation rate	x	Actual Allocation Base used	=	Allocated mfg. OH cost
Materials handling	$                                            4	x	10000	=	$                               40,000
Packaging	$                                          70	x	1600	=	$                           1,12,000
Quality assurance	$                                          60	x	200	=	$                               12,000
Total activity-based costs					$                           1,64,000
Number of units					2000
Activity-based cost per unit					$                                 82.00
Travel Packs
Activity	Predetermined OH allocation rate	x	Actual Allocation Base used	=	Allocated mfg. OH cost
Materials handling	$                                            4	x	5100	=	$                               20,400
Packaging	$                                          70	x	510	=	$                               35,700
Quality assurance	$                                          60	x	765	=	$                               45,900
Total activity-based costs					$                           1,02,000
Number of units					51000
Activity-based cost per unit					$                                   2.00

4.

	Commercial Containers	Travel Packs
Activity-based cost per unit	$                                  82.00	$             2.00
Traditional cost per unit	$                                112.00	$             1.40

Under the traditional system, the indirect costs were overcharged to the commercial containers and under charged to travel packs.

The costs changed under the activity based system as the costs got charged to the product lines in proportion to the usage of the various activities of materials handling, packaging, and quality assurance by each product line.