Rho Pharmaceuticals

• Rho Pharmaceuticals is analyzing the profitability of two products: Gamma and Delta.
• Gamma: Direct materials - $70,000, Direct labor - $40,000, Overhead - $25,000
• Delta: Direct materials - $90,000, Direct labor - $60,000, Overhead - $35,000
• The company uses activity-based costing (ABC) to allocate overhead costs. Total overhead cost: $60,000. Activity cost driver rates: $20 per machine hour and $10 per labor hour. Gamma uses 2,000 machine hours and 1,500 labor hours. Delta uses 3,000 machine hours and 2,500 labor hours.

Requirement: Calculate the total cost for each product using ABC and compare it with traditional costing. Discuss the impact of the costing method on product pricing and profitability.

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