Expert answer:Need help with an Accounting Homework Question Bel

Answer & Explanation:Corbertt
Pharmaceuticals manufactures 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 stations, and
hotels. The following information has been developed to determine if an
activity-based costing system
would be beneficial:

Activity
Estimated
Indirect Activity
Costs
Allocation Base
Estimated
Quantity of
Allocation Base
 
 

Materials handling
$95,000
Kilos
19,000 kilos
 
 

Packaging
219,000
Machine hours
5,475 hours
 
 

Quality assurance
124,500
Samples
2,075 samples
 
 

Total indirect costs
$438,500
 
 
 
 

Other production information
includes the following:
 
 
 
 

Commercial Containers
Travel Packs
 
 
 

Units produced
3,500 containers
57,000 packs
 
 
 

Weight in kilos
14,000
5,700
 
 
 

Machine hours
2,625
570
 
 
 

Number of samples
700
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 commercial containers and the travel packs. (Hint: First compute the total activity
cost allocated to each product line, and then compute the cost per unit.)

3. Corbertt’s
original single-allocation-base costing system allocated indirect costs to
produce at $157 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.

4. Compare the
indirect activity-based costs per unit to the indirect costs per unit from
the single-allocation-base system. How have the unit costs changed? Explain
why the
costs changed.

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