1: Additional information Activity Materials handling Packaging Estimated Estimated Indirect Allocation Quantity of Activity Costs Base Allocation Base $ 195,000 kilograms 15,000 kg 576,000 Machine hours ... 2,400 hours 101,750 Samples ...... Quality assurance 1,850 samples $ 872,750 Total indirect costs The commercial-container Breathe product line had a total weight of 7,700 kilograms, used 1,050 machine hours, and required 270 samples. The travel-pack line had a total weight of 5,500 kilograms, used 350 machine hours, and required 420 samples. Jacobson produced 2,700 commercial containers of Breathe and 45,000 travel packs. 2: Requirements 1. Compute the cost allocation rate for each activity. 2. Use the activity-based cost allocation rates to compute the indirect cost of each unit of the commercial containers and the travel packs. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit) 3. Jacobson Pharmaceuticals' original single-allocation-based cost system allocated indirect costs to products at $380 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 activity-based costs per unit to the costs from the original system. How have the unit costs changed? Explain why the costs changed as they did. 1. Jacobson Pharmaceuticals manufactures an Jacobson Pharmaceuticals' controller, Sandra Dean, has over-the-counter allergy medication called Breathe and is just returned from a conference on ABC. She asks Keith trying to win market share from Sudafed and Claritin. Yeung, supervisor of the Breathe product line, to help her Jacobson Pharmaceuticals has developed several develop an ABC system. Dean and Yeung identify the different Breathe products tailored to specific markets. For following activities, related costs, and cost allocation example, the company sells large commercial containers bases: of 1,000 capsules to health-care facilities and travel packs Click the icon to view the information.) of 20 capsules to shops in airports, train stations, and Requirements hotels. Requirement 1. Compute the cost allocation rate for each activity. Determine the formula and then compute the cost allocation rate for each activity. (Round your answers to the nearest whole dollar.) (1) (2) = Mat. handling Packaging QA Activity overhead rate / kg 1 hour 1 sample Requirement 2. Use the activity-based cost allocation rates to compute the indirect cost of each unit of the commercial containers and the travel packs. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit.) (Round the cost per unit to the nearest cent.) Commercial Container Travel Pack Materials handling Packaging Quality assurance Total indirect costs / Number of units Indirect activity cost per unit Requirement 3. Jacobson Pharmaceuticals's original single-allocation-based cost system allocated indirect costs to products at $380 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. Indirect cost Product (3) (4) allocated Commercial Travel = Now compute the indirect cost per unit for each product under the original single-allocation-base system. (Round the cost per unit to the nearest cent.) Commercial Container Travel Pack Total indirect costs allocated / Number of units Indirect cost per unit Requirement 4. Compare the activity-based costs per unit to the costs from the original system. How have the unit costs changed? Explain why the costs changed as they did. The original system (5) the commercial containers and (6). the travel packs. The original system allocated (7). However, commercial containers (8) The ABC of the material system (9) So, relative to the original system, ABC allocates (10) handling and quality assurance costs to commercial containers
