Corbertt Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe and is trying to win market share from Sudafed and Claritin. Corbertt Pharmaceuticals has developed several different Breathe products tailored to specific markets. For example, the company sells 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.

Cobertt Pharmaceuticals' controller, Sandra Dean, has just returned from a conference on ABC. She asks Keith Yeung, supervisor of the Breathe product line, to help her develop an ABC system. Dean and Yeung identify the following activities, related costs, and cost allocation bases:

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.Corbertt Pharmaceuticals' original single-allocation-based cost system allocated indirect costs to products at $250 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.

Data Table - Estimated Estimated Indirect Allocation Quantity of Activity Activity Costs Base Allocation Base Materials handling S 180,000 kilograms 18,000 kg Packaging 420,000 Machine hours .2,200 hours Quality assurance 2,400 samples S Total indirect costs 714,000 The commercial-container Breathe product line had a total weight of 8,400 kilograms, used 2,100 machine hours, and required 240 samples. The travel-pack line had a total weight of 6,600 kilograms, used 700 machine hours, and required 340 samples. Corbertt produced 3,400 commercial containers of Breathe and 90,000 travel packs. 114,000 Samples Print Done Requirement 1. Compute the cost allocation rate for each activity. Determine the formula, then compute the cost allocation rate for each activity. (Round your answers to the nearest whole dollar.) Activity overhead rate Mat, handling kg Packaging /hour sample Requirement 2. Use the activity based cost allocation rates to compute the indirect cost the nearest cent.) 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 Commercial Container Travel Pack Materials handling Packaging Quality assurance Total indirect costs / Number of units Indirect activity cost per unit Requirement 3. Corbertt Pharmaceuticals' original single-allocation-based cost system allocated indirect costs to products at $250 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 allocated Product 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 the commercial containers and the travel packs The original system allocated The ABC system However, commercial containers V. So, relative to the original system, ABC allocates of the material handling and quality assurance costs to commercial containers