Percival Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe. Percival is trying to win market share from Sudafed and Tylenol. The company 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.

Percival's controller Donna Swanson, has just returned from a conference on ABC. she askes Carol Yost, supervisor of the Breathe product line, to help her develop an ABC system. Swanson and Yost identify the following activities, related costs and cost allocation bases"

Activity	Estimated Indirect Overhead Costs	Allocation Base	Estimated Activity	Units
Materials Handling	$ 180,000	Kilos	18,000	kilos
Packaging	460,000	Machine Hours	2,600	hours
Quality Assurance	116,000	Samples	1,500	samples
Total Overhead	$ 756,000

Additional information follows:

	Commercial	Travel Packs
Kilos	8,500	6,000
Machine Hours	1,200	400
Samples	240	340
Units	2,500	80,000

Excel Template for Question:

Exam 1 ABC question 1.xlsxDownload Exam 1 ABC question 1.xlsx

Required:

1. Assuming that the company used machine hours as an allocation base for their job costing systems, compute the predetermined overhead rate.

2. Allocate the overhead costs under job costing.

3. Determine the overhead cost per unit for each product under job costing.

4. Calculate the activity rates using activity-based-costing (ABC)

5. Allocate the overhead costs under ABC

6. Determine the overhead cost per unit for each product under ABC.

7. Make a recommendation to the company whether they should use job costing or ABC. Please explain your answer.