Comprehensive ABC implementation Learning Objectives 2 & 3) Pharmaceuticals manufactures an over-the-counter allergy medication called vity-Based Costing, Lean Operations, and the Costs of Quality 235 Durbin the. Durbin is trying to win market share from Sudafed and Tylenol. The company has lseveral different Breathe products tailored to specific markets. For example, any sells large commercial containers of 1,000 capsules to health-care facilities the com d travel packs of 20 capsules to shops in airports, train stations, and hotels. She asks an cost allocation bases: rbin's controller, Katarina Hoffman, has just returned from a conference on ABc. Bradley Williams, supervisor of the Breathe product line, to help her develop tem. Hoffman and Williams identify the following activities, related costs, and Estimated Indirect Activity Costs Estimated Quantity of Allocation Base Materials handling Packaging Allocation Base Kilos Machine hours $160,000 20,000 kilos 390,000 112.000 Samples 662,000 2,000 hours 1,600 samples Total indirect costs.... ARN The commercial-container Breathe product line had a total weight of 8,700 kilos, used 00 machine hours, and required 270 samples. The travel-pack line had a total weight of 50 kilos, used 300 machine hours, and required 370 samples. Durbin produced 3,000 ntainers of Breathe and 20,000 travel packs. commercial co 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. The company's original single-allocation-based cost system allocated indirect costs to products at $350 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then com- pute the indirect cost per unit for each product. 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. 4
