Question

Westford Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Westford varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its overhead based on the number of prescriptions. The pharmacy chain's controller is exploring whether activity-based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders. The controller has gathered the following information: E (Click the icon to view the expected usage and costs.) The clerk for Westford has gathered the following information regarding two recent pharmacy orders: E: (Click the icon to view the pharmacy order data.) Read the requirements. Requirement 1. What is the traditional overhead rate based on the number of prescriptions? i Requirements First identify the formula used to compute the traditional overhead rate, then compute the rate. (Round your answer to the nearest cent. Abbre Traditional overhead rate 1. 2. Data Table 3. 4. Total Annual Total Annual Estimated Cost What is the traditional overhead rate based on the number of prescriptions? How much pharmacy overhead would be allocated to customer order number 1245 if traditional overhead allocation based on the number of prescriptions is used? How much pharmacy overhead would be allocated to customer order number 1246 if traditional overhead allocation based on the number of prescriptions is used? What are the following cost pool allocation rates: a. Pharmacy occupancy costs b. Packaging supplies c. Professional training and insurance costs How much would be allocated to customer order number 1245 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs? How much would be allocated to customer order number 1246 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs? Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer. Estimated Cost Cost Driver Driver Activity 65,000 5. Technician hours ... Cost Pools Pharmacy occupancy costs (utilities, rent, and other costs). Packaging supplies (bottles, bags, and other packaging) $ 26,000 6. Number of prescriptions .... 22,000 $ 35,200 161,000 7. $ Professional training and insurance costs. Pharmacist hours 23,000 $ 222,200 Total pharmacy overhead.............. Print Done

Answer 1

O predetermined ovshead Estimatel overhead Rate Number of Prescriptions $999, 200 22000 17 10.1 per prescription overhead allocated to Job No 1245 Sprescription X 1001 $5005 overhead allocated To Job No 1946 - MAS) 3 X 1001 1$3003 - allocation Rates - Estimated cost for pharmacy acupany cost Technical hours $26000 65000 laws (8014 po Technical hoah Packaging supplies Estimated Numbes of prescriptions 35200 cost 28000 1.6 Ipes Priscription

o for professional Traning and Insulance costs 16000 23000 phasmay haws = / Pharmacy hour 5 overhead allocated to job laus under Accosting Pharmacy occupancy cost ory Xoos= $0.2 Packagins upplies = le 6X 5=8 professional training and Insurance costs FX3 - 2) I Total Overhead cost alts to.2=129.2 = 6 overhead cost Allocated to Job 1246 under ABC Pharmacy occupancy cost 0.2 Packaging supplies = 4.8 (1+673) Professfonal Training and = 24.15 Insurance cost 3.577) Total overhead cost 29.5 = on @ Active ty Based costing all cates owerheads Based All activities in the resforming the obligations It is method of Ac weate a for providing Product cost. Hence ABC costing method should be preferable Thank you