Question

# McNeilMcNeil Pharmaceuticals manufacturers an​ over-the-counter allergy medication. The company sells both large commercial containers of​ 1,000...

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

Cost allocation rate for each activity

 Estimated Overhead cost Estimated quantity predetermined OH = Estimated OH cost / Estimated quantity Activity Indirect cost Allocation base of allocation Material handling 98000 Kilos 24500 98000/24500 = 4 Packaging 209000 Machine hours 2786 209000 /2786 = 75 Quality assurance 124500 Samples 2075 124500 / 2075 = 60 431500

Activity-based cost allocation rates to compute the activity costs per unit of the commercial containers and the travel packs

 Commercial Containers Activity cost Units produced 2,400 containers Weight in kilos 12,000 4 48000 Machine hours 1920 75 144000 Number of samples 240 60 14400 206400
 Travel packs Activity cost Units produced 56000 packs Weight in kilos 11,200 4 44,800 Machine hours 560 75 42,000 Number of samples 840 60 50400 137200