HCI Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe and is trying to win market share from Sudafed and Claritin. HCI Pharmaceuticals has developed several different Breathe health-care facilities and travel packs of 20 capsules to shops in airports, train stations, and products tailored to specific markets. For example, the company sells large commercial containers of 1,000 capsules hotels HCI 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: (Click the icon to view the information.) Requirements Additional information 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.) Activity overhead rate Activity Estimated Estimated Indirect Allocation Quantity of Activity Costs Base Allocation Base S 180.000 Kilograms ...... 20.000 kg 525.000 Machine hours 2,500 hours Mat. handling /kg Packaging 1 hour Materials handling Packaging Quality assurance QA sample 101,400 Samples 1,950 samples 808.400 Requirement 2. Use the activity-based cost allocation rates 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.) Total indirect costs Commercial Container Travel Pack Materials handling The commercial-container Breathe product line had a total weight of 7,700 kilograms, used 1,350 machine hours, and required 220 samples. The travel-pack line had a total weight of 6,200 kilograms, used 450 machine hours, and required 370 samples. HCI produced 2.800 commercial containers of Breathe and 40.000 travel packs. Packaging Quality assurance Total indirect costs Number of units Print Done Indirect activity cost per unit Requirement 3. HCI 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 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 V the travel packs. However, commercial containers The ABC system So, relative to the original system, ABC allocates The original system allocated of the material handling and quality assurance costs to commercial containers
