Corbett Pharmaceutials Manufactures are over-the-counterallergy medication. The company sells, both, large commercial containers of 1,000 capsules to health care facilites and travel packs of 20 capsules to shops in airports, train stations,and hotels.
The following information has been developed to determine if any activity based costing system would be beneficial
Activity Estimated indirect activity cases allocation base Estimated quanityof allocation base
- materials 95,500 kilos 19,000 kilos
- packaging 219,000 machine hours 5,475 hours
- quality assurance 124,500 samples 2,075 samples
- total indirect cost 438,500
- other production information includes the following
- Commercial containers Travel Parts
- Units produced 57,000
- weight in kilos 5,700
- machine hours 570
- number of samples 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 commerical containers and the travle packs.
3. Corbett's original single- allocation-base costing system allocated at $157 per machine hour. Compute the total cost allocated to the commerical contaniers and to the travel packs under the originel system. Then compute the indirect cost per unit for each product.
4. Compare the indirect activity-based cost per unit to the indirect cost per unit from the single allocation-base system. How have the unit costs changed? Explain why the costs changed