McNeil Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe and is trying to win market McNeil Pharmaceuticals' controller, Sandra Dean, has just returned from a conference on ABC. She asks Keith Yeung, share from Sudafed and Claritin. McNeil Pharmaceuticals has developed several different Breathe products tailored to supervisor of the Breathe product line, to help her develop an ABC system. Dean and Yeung identify the following activities, specific markets. For example, the company sells large commercial containers of 1,000 capsules to health-care facilities and related costs, and cost allocation bases: travel packs of 20 capsules to shops in airports, train stations, and hotels. (Click the icon to view the information.) RequirementsAdditional information X Estimated Estimated Indirect Allocation Quantity of Activity Activity Costs Base Allocation Base Materials handling . ..... . $ 200,000 Kilograms ....... 20,000 kg Packaging ..... 408,000 Machine hours ... 2,400 hours Quality assurance 101,400 Samples ........ 1,950 samples Total indirect costs . $ 709,400 The commercial-container Breathe product line had a total weight of 7,800 kilograms, used 1,320 machine hours, and required 220 samples. The travel-pack line had a total weight of 5,700 kilograms, used 440 machine hours, and required 370 samples. McNeil produced 3,000 commercial containers of Breathe and 75,000 travel packs. Print DoneRequirement 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 Mat. handling kg Packaging hour QA / 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 unitRequirement 3. McNeil Pharmaceuticals's original single-allocation-based cost system allocated indirect costs to products at $400 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 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 unitRequirement 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 However, commercial containers The ABC system So, relative to the original system, ABC allocates of the material handling and quality assurance costs to commercial containers
