Question

$P19-33A (similar to) Cuestion Hep Robert Phamaceuticals manufachurers an over the counter allergy medicalion. 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 benelicial EE (Click the icon to view the information.) Read the requirements Data Table Requirement 1. Roberts orig Compute the total indirect cos per unit for each product. Rou per machine hour the indirect ost Estimated Estimated Quantity cturing Round Select the formula, and then e dollar amounts to two decimal Activity Indirect Costs Allocation Base of Allocation Base Materials handling 95,000 Number of kilos 19,000 kilos Packaging 200,000 Number of machine hours 5,000 hours Commercial containers Quality assurance 112,500 Number of samples 1,875 samples 407,500 Total indirect costs Actual production information includes the following: Commercial Containers Travel Packs Units produced 3,500 containers 50.000 packs Weight in kilos 15,750 10.000 Machine hours 2,625 500 Enter any number in the edit Number of samples 350 750 10 parts remaining nswer Print Done us P19-33A (similar to Cuestion Help Robert Phamaceuticals manufacturers an over-the-counter allergy rmedicaion. The company sells both large commercial containers of 1,000 capsules to health care facilities and trivel 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 sysdem would be beneficial (Click the ioon to view the information.) Read the requirements Requirement 1. Robert's original single plantwide overhead allocation rate costing system allcated indirect costs to products at $81.50 per machine hour Compute the total indirect costs allooated to the commercial containers and to the travel packs under the oniginal system. Then compute the indirect cost per unit for each product. Round to two decimal places Select the fomula, 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.) Allocated mfg. OH cost Number of units = Indirect oost per unit Commercial containers - X Requirements 1. Robert's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $81.50 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 indireat 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 costs 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) Enter any number in the edit fields 4. 10 parts remaining Compare the indirect activity-based costs per unit to the indirect costs per unit from the traditional system. How havee the unit costs changed? Explain why the costs changed

Answer 1

1	Calculation of indirect Cost allocation
	Allocation on the basis of Machine hrs as a single predetermined rate.
		Commercial Containers	Travel Packs
	Machine Hrs	2625	500
	Allocation rate	81.5	81.5
	Total Cost	213937.5	40750
	Units Produced	3500	50000
	Indirect Cost/Unit	61.13	0.82
2	Computation of the predetermined Allocation Rate for each activity
	Activity	Estimated Indirect Activity Costs	Estimated Allocation Base	Allocation Rate	Per Activity
	Material Handling	95000	19000	5	Kilos
	Packaging	200000	5000	40	Machine Hrs
	Quality Assurance	112500	1875	60	Samples
3	Computation of the activity based costs per unit of the commercial containers and travel packs
		Commercial Containers	Amount	Travel Packs	Amount
	Material Handling at 5 per kilo	15750	78750	10000	50000
	Packaging at 40 per Mach Hr	2625	105000	500	20000
	Quality Assurance at 60 samples	350	21000	750	45000
	Total Indirect Costs		204750		115000
	Units Produced	3500		50000
	Cost per unit		58.5		2.3
4	Comparison of the activity based system with the traditional system
		ABC		Traditional
		Commercial Containers	Travel Packs	Commercial Containers	Travel Packs
	Cost per unit	58.5	2.3	61.13	0.82
	As per the single allocation we can see that the commercial packs are utilizing the machine hrs more
	so it has the greater cost.
	In the case of ABC it allocates based on the different activities which actually reduces the cost per activity
	base and eventually reduces the total cost.