Activity-Based Costing, Lean Operations, and the Costs of Quality 235 P4-43A Comprehensive ABC implementation (Leaming Objectives 2& 3) Durbin Pharmaceuticals manufactures an over the counter allergy medication called Breathe. Durbin is trying to win market share from Sudafed and Tylenol. The company has developed several different Breathe products tailored to specific markets. For eample, the company sells 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 Durbin's controller, Katarina Hoffman, has just retuned from a conference on AlBC She asks Bradley Williams, supervisor of the Breathe product line, to help her develop an ABC system. Hoffman and Williams identify the following activities, related costs, and cost allocation bases: Estimated Indirect Activity Costs Estimated Quantity of Allocation Base Allocation Base Materials handling $160,000 Kilos 20,000 kilos Packaging 390,000 Machine hours 2,000 hours Quality assurance 112.000 Samples 1,600 samples Total indirect costs S662.000 The commercial-container Breathe product line had a total weight of 8,700 kilos, used 900 machine hours, and required 270 samples. The travel-pack line had a total weight of 4,450 kilos, used 300 machine hours, and required 370 samples. Durbin produced 3,000 commercial containers of Breathe and 20,000 travel packs. Requirements 1. Compute the cost allocation rate for each activity. 2. Use the activity-based cost allocation rates to compute the indirect cost of each unit of the commercial containers and the travel packs. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit.) 3. The company's original single-allocation-based cost system allocated indirect costs to products at $350 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then com- pute the indirect cost per unit for each product.
Activity-Based Costing, Lean Operations, and the Costs of Quality 235 P4-43A Comprehensive ABC implementation (Leaming Objectives 2& 3) Durbin Pharmaceuticals manufactures an over the counter allergy medication called Breathe. Durbin is trying to win market share from Sudafed and Tylenol. The company has developed several different Breathe products tailored to specific markets. For eample, the company sells 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 Durbin's controller, Katarina Hoffman, has just retuned from a conference on AlBC She asks Bradley Williams, supervisor of the Breathe product line, to help her develop an ABC system. Hoffman and Williams identify the following activities, related costs, and cost allocation bases: Estimated Indirect Activity Costs Estimated Quantity of Allocation Base Allocation Base Materials handling $160,000 Kilos 20,000 kilos Packaging 390,000 Machine hours 2,000 hours Quality assurance 112.000 Samples 1,600 samples Total indirect costs S662.000 The commercial-container Breathe product line had a total weight of 8,700 kilos, used 900 machine hours, and required 270 samples. The travel-pack line had a total weight of 4,450 kilos, used 300 machine hours, and required 370 samples. Durbin produced 3,000 commercial containers of Breathe and 20,000 travel packs. Requirements 1. Compute the cost allocation rate for each activity. 2. Use the activity-based cost allocation rates to compute the indirect cost of each unit of the commercial containers and the travel packs. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit.) 3. The company's original single-allocation-based cost system allocated indirect costs to products at $350 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then com- pute the indirect cost per unit for each product.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:CHER
FANIEAAAND Al
ビ-24
P4-4
ノ-9S
Activity-Based Costing. Lean Operations, and the Costs of Quality
235
P4-43A Comprehensive ABC implementation (Leaming Objectives 2 & 3)
Durbin Pharmaceuticals manufactures an over-the-counter allergy medication called
Breathe. Durbin is trying to win market share from Sudafed and Tylenol. The company has
developed several different Breathe products tailored to specific markets. For example,
the company sells 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.
Durbin's controller, Katarina Hoffman, has just returned from a conference on ABC.
She asks Bradley Williams, supervisor of the Breathe product line, to help her develop
an ABC system. Hoffman and Williams identify the following activities, related costs, and
saseq uogeoe is00
Estimated Indirect
Estimated Quantity
of Allocation Base
Activity Costs
Allocation Base
Materials handling
so
Machine hours
000'09IS
so 000'oz
Bujbeped
Quality assurance
000'06E
sunoy 000'z
112.000
Samples
1,600 samples
Total indirect costs
S662.000
The commercial-container Breathe product line had a total weight of 8,700 kilos, used
900 machine hours, and required 270 samples. The travel-pack line had a total weight of
4,450 kilos, used 300 machine hours, and required 370 samples. Durbin produced 3,000
commercial containers of Breathe and 20,000 travel packs.
Requirements
1. Compute the cost allocation rate for each activity.
2. Use the activity-based cost allocation rates to compute the indirect cost of each unit
of the commercial containers and the travel packs. (Hint: Compute the total activity
costs allocated to each product line and then compute the cost per unit.)
3. The company's original single-allocation-based cost system allocated indirect costs to
products at $350 per machine hour. Compute the total indirect costs allocated to the
commercial containers and to the travel packs under the original system. Then com-
pute the indirect cost per unit for each product.
4. Compare the activity-based costs per unit to the costs from the original system. How
have the unit costs changed? Explain why the costs changed as they did.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education