McNeilMcNeil Pharmaceuticals manufacturers an overthecounter

McNeilMcNeil 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:

1. Compute the predetermined overhead allocation rate for each activity.

2. 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.)

3. McNeilMcNeil\'s original single plantwide overhead allocation rate costing system allocated indirect costs to products at $ 154.88$154.88 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.

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. Estimated Estimated Quantity Activity Indirect Costs Allocation Base of Allocation Base Materials handling $98,000 Number of kilos 24,500 kilos Packaging 209,000 Number of machine hours 2,786 hours Quality assurance 124,500 Number of samples 2,075 samples Total indirect costs $431,500 Actual production information includes the following: Commercial Containers Travel Packs Units produced 2,400 containers 56,000 packs Weight in kilos 12,000 11,200 Machine hours 1,920 560 Number of samples 240 840

Estimated

Estimated Quantity

Activity

Indirect Costs

Allocation Base

of Allocation Base

Materials handling

$98,000

Number of kilos

24,500

kilos

Packaging

209,000

Number of machine hours

2,786

hours

Quality assurance

124,500

Number of samples

2,075

samples

Total indirect costs

$431,500

Actual production information includes the following:

Commercial Containers

Travel Packs

Units produced

2,400

containers

56,000

packs

Weight in kilos

12,000

11,200

Machine hours

1,920

560

Number of samples

240

840

Solution

Answer