Razorback Remedies produces a natural allergy treatment in tablet form. The company sells large containers of 1,000 tablets to university health centers and small containers of 50 tablets to health food stores. The company is considering adopting an activity-based costing system and the accountant gathered the following information: Activity Materials handling Estimated Indirect Cost $350,000 Cost Driver Pounds Packaging 500,000 Estimated Activity 58,000 pounds 8,000 hours 6,000 samples Machine Hours Number of Samples Quality control 250,000 Total indirect costs $1,100,000 Other production information follows: Large Containers Units produced 20,000 Weight in pounds 40,000 Machine hours 6,000 Number of samples 1,000 Small Containers 180,000 18,000 2,000 5,000 . Razorback's current system allocates indirect cost to roducts on the basis of machine hours. Calculate the predetermined overhead application rate er machine hour. edetermined Overhead Rate = $1,100,000/ (6,000+2,000) 137.50 per machine hour 2. Use the overhead application rate per machine hour to compute the Indirect cost applied to each product line (large containers and small containers). In addition, calculate the Indirect cost per unit for large and small containers. Current System Large Containers Predetermined Overhead Rate Number of Machine Hours Indirect Cost Applied (137.5*6000). (137.52000) Number of units produced Indirect cost per unit (825000/20000, (27500/180000) Small Containers 137.5 137.5 6000 2000 825000 275000 20000 180000 41.25 1.53 Activity Based Costing Activity Materials Handling Packing Quality Control Total Indirect Costs Number of Units Indirect cost per unit Estimated Indirect Cost Cost Driver 350000 500000 250000 1100000 Cost Rate Large Containers Small Containers 58000 6,034482759 241379 108621 8000 62.5 375000 125000 6000 41.66666667 41667 208333 658046 441954 20000 180000 32.9 2.46 3. Assuming the company wants to convert to an activity-based system, calculate the cost per unit of the cost driver for each activity in the first chart above. Activity Based Costing Cost Driver Activity Cost Activity Cost per unit of cost driver per activity Materials Handling 350000 58000 6.03 500000 8000 62.50 Packing 250000 6000 41.67 Quality Control 4. Use the cost per unit of cost drive to compute the indirect cost applied to each product line (large containers and small containers). In addition, calculate the indirect cost per unit for large and small containers. Overhead Cost Applied No. of units produced Indirect cost per unit Comparison Large containers Small Containers $658,046 $441,954 20000 180000 32.90 2.46 Amount Cost Category Material Handling Packaging Quality control Costo 350000 500000 250000 A/C 58000 80000 60000 6.03 62.5 41.67 Cost 40000 2000 5000 Total Insdirect Cost Number of Units ndirect Cost per unit Large Amount D'S Cost (M) 241379 375000 41667 658046 20000 32.9 Small D'M 18000 108621 20000 125000 5000 208333 441954 180000 2.46 5. Compare the indirect activity-based cost per unit to the ndirect cost per unit from the current (traditional) system. How have unit costs changed? Explain why the costs hanged as they did. Question Please explain stepbystep