Required information [The following information applies to the questions displayed below.] ADA Pharmaceutical Company produces three drugs-Diomycin, Homycin, and Addolin-belonging to the analgesic (pain-killer) family of medication. Since its inception four years ago, ADA has used a direct labor hour-based system to assign manufacturing overhead costs to products. Eme Weissman, the president of ADA Pharmaceutical, has just read about activity-based costing in a trade journal. With some curiosity and interest, she asked her financial controller, Takedo Simon, to examine differences in product costs between the firm's current costing and activity-based costing systems. ADA has the following budget information for the year: Cost of direct materials Cost of direct labor Number of direct labor hours Number of capsules Diomycin $ 201,000 246,000 7,160 960,000 Homycin $ 261,000 230,000 6,760 496,000 Addolin $ 254,000 259,000 1,960 296,000 ADA has identified the following activities and cost drivers and has assigned them a total overhead cost of $198,000. Activity Machine setup Plant management Supervision of direct labor Quality inspection Order expediting Total overhead Cost Driver Setup hours Number of Workers Direct labor hours Inspection hours Customers served Budgeted Budgeted Cost Driver Overhead Cost Volume $ 15,600 1,560 35,600 1,160 45,600 15,600 50,000 1,030 51,200 625 $198,000 Takedo selected the cost drivers with the following justifications: SETUP HOURS: The cost driver of setup hours is used because the same product takes about the same amount of setup time regardless of size of batch. For different products, however, the setup time varies. NUMBER OF WORKERS: Plant management includes plant maintenance and corresponding managerial duties that make production possible. This activity depends on the number of workers. The more workers involved, the higher the cost. DIRECT LABOR HOURS: Supervisors spend their time supervising production. The amount of time they spend on each product is proportional to the direct labor hours worked. INSPECTION HOURS: Inspection involves testing a number of units in a batch. The time varies for different products but is the same for all similar products. NUMBER OF CUSTOMERS SERVED: The need to expedite production increases as the number of customers served by the company increases. Thus, the number of customers served by ADA is a good measure of expediting production orders. Takedo gathered the following information about the cost driver volume for each product: Setup hours Number of workers Direct labor hours Inspection hours Customers served Diomycin Homycin 180 580 180 380 7,160 6,760 130 180 41 Addolin 780 580 1,960 680 480 96 Required: 1. Use the firm's current direct labor hour-based costing system to calculate the unit cost of each product. 2. Use the activity-based costing system to calculate the unit cost of each product. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the firm's current direct labor hour-based costing system to calculate the unit cost of each product. (Round your intermediate calculations and final answers to two decimal places.) $ Diomycin 201,000.00 $ 246,000.00 $ Homycin 261,000.00 $ 230,000.00 $ Addolin 254,000.00 259,000.00 $ Direct Materials Direct Labor Overhead Total Cost Number of Capsules Cost per capsule $ 447,000.00 $ 960,000 491,000.00 $ 496,000 513,000.00 296,000 Required: 1. Use the firm's current direct labor hour-based costing system to calculate the unit cost of each product. 2. Use the activity-based costing system to calculate the unit cost of each product. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the activity-based costing system to calculate the unit cost of each product. (Round intermediate calculations to 2 decimal places. Round "Cost per capsule" to 2 decimal places.) $ Diomycin Homycin 201,000.00 $ 261,000.00 $ 246,000.00 $ 230,000.00 $ Addolin 254,000.00 259,000.00 $ Direct Materials Direct Labor Overhead Total Cost Number of Capsules Cost per capsule $ 447,000.00 $ 960,000 491,000.00 $ 496,000 513,000.00 296,000
