Werner Pharmacy, part of a large drugstore chain, fills a variety of prescriptions for customers. The complexity of the recipes dispensed by Werner varies widely; pharmacists can spend anywhere from five minutes to six hours ordering a prescription. Traditionally, the pharmacy has allocated its overhead based on the number of prescriptions. The controller of the pharmacy chain is exploring whether activity-based costing (ABC) can better allocate overall pharmacy costs to pharmacy orders.

The controller has collected the following information:

Total annual
Total annual		Estimated cost
cost groups	Estimated cost	cost factor	driver activity
	Pharmacy occupancy costs (utilities, rent, and		Technician hours. . . . . . .	85,000
	other costs). . . . . . . . . . . . . . . . . . . . . . .	$68,000
	Packaging supplies (bottles, bags and other		Number of recipes. .	20,000
	packaging). . . . . . . . . . . . . . . . . . . . . . . .	$24,000
	Vocational training and insurance costs. . .	$168,000		Pharmacy hours. . . . . . .	21,000
Total pharmacy overhead. . . . . . . . . . . . .	$260,000

Werner's secretary has collected the following information on two recent pharmacy orders:

customer order no	Technician hours	# of recipes	pharmacy hours
1241	0.5	4	1.0
1242	0.5	2	1.5

1 What is the traditional overhead rate based on the number of prescriptions?
2.	How much pharmacy overhead would be allocated to the customer's order? number 1241 if the traditional overhead allocation based on the number of prescriptions is used?
3.	How much pharmacy overhead would be allocated to the customer's order? number 1242 if the traditional overhead allocation based on the number of prescriptions is used?
4.	What are the following cost pool allocation rates? to. Pharmacy occupancy costs b. packing supplies C. Vocational training and insurance costs
5.	How much would be allocated to customer order number 1241 if activity-based costing (ABC) is used to allocate pharmacy overhead costs?
6.	How much would be allocated to customer order number 1242 if activity-based costing (ABC) is used to allocate pharmacy overhead?
7.	Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer.