Robert Pharmaceuticals manufacturers an over-the-counter allergy medication. The company sells both 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. The following information has been developed to determine if an activity-based costing system would be beneficial:

activtiy	estimated indirect costs	allocation bas	quantity of allocation base
materials handeling	$95,000	num. of kilos	19,000 kilos
packagring	200,000	num. of machine hours	5000 hours
quality assurance	112,500	num. of samples	1875 samples
total indirect costs	$407,500

Actual production information includes the following:

	Commercial Containers	Travel Packs
Units produced	3,200 containers	50,000 packs
Weight in kilos	11,200	5,000
Machine hours	2,400	500
Number of samples	640	750

Requirements

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1.

Robert's

original single plantwide overhead allocation rate costing system allocated indirect costs to products at

$81.50

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. Round to two decimal places.

Select the formula, and then enter the amounts to compute the indirect cost per unit for each product. (Abbreviation used: mfg. = manufacturing. Round dollar amounts to two decimal places.)

=

Indirect cost per unit

2.

Compute the predetermined overhead allocation rate for each activity.

3.

Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places.

(Hint:

First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

4.

Compare the indirect activity-based costs per unit to the indirect costs per unit from the traditional system. How have the unit costs changed? Explain why the costs changed.