Wolanin Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Wolanin varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its overhead based on the number of prescriptions. The pharmacy chain's controller is exploring whether activity-based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders. The controller has gathered the following information: (Click the icon to view the expected usage and costs.) The clerk for Wolanin has gathered the following information regarding two recent pharmacy orders: B Click the icon to view the pharmacy order data.) Read the requirements. Requirement 1. What is the traditional overhead rate based on the number of prescriptions? First identify the formula used to compute the traditional overhead rate, then compute the rate. (Round your answer to the nearest cent. Abbreviations used: est. = estimated) = Traditional overhead rate Technician Hours Number of Prescriptions Pharmacist Hours Customer Order Number 1247 0.5 4 1.0 Customer Order Number 1248 0.5 2 1.5 Total Annual Estimated Cost Total Annual Estimated Cost Driver Activity Cost Driver Cost Pools Pharmacy occupancy costs (utilities, rent, and other costs)... Packaging supplies (bottles, bags, and other packaging)... $ 42,000 Technician hours 70,000 20,000 28,000 Number of prescriptions .. 69,000 Pharmacist hours $ Professional training and insurance costs 23,000 139,000 Total pharmacy overhead 1. 2. 3. 4. What is the traditional overhead rate based on the number of prescriptions? How much pharmacy overhead would be allocated to customer order number 1247 of traditional overhead allocation based on the number of prescriptions is used? How much pharmacy overhead would be allocated to customer order number 1248 if traditional overhead allocation based on the number of prescriptions is used? What are the following cost pool allocation rates: a. Pharmacy occupancy costs b. Packaging supplies c. Professional training and insurance costs How much would be allocated to customer order number 1247 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs? How much would be allocated to customer order number 1248 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs? Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer. 5. 6. 7
