Willitte Pharmaceuticals manufactures 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:

Actual production information includes the following:

Requirements
1. Willitte'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.
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. (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.

Transcribed Image Text:

Estimated Indirect Cost Estimated Quantity of Allocation Base 19,000 kilos 5,000 hours 1,875 samples Activity Materials handling Packaging Quality assurance Allocation Base $ 95,000 Number of kilos Number of machine hours 200,000 112,500 $ 407,500 Number of samples Total indirect costs Commercial Containers Travel Packs Units produced Weight in kilos Machine hours Number of samples 50,000 packs 5,000 2,400 containers 9,600 1,680 500 750 240