Maloney 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: LOADING... (Click the icon to view the information.) Read the requirements LOADING... . Requirement 1. Maloney's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $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. Select the formula, and then enter the amounts to compute the indirect cost per unit for each product. (Abbreviation used: mfg. = manufacturing. Round dollar amounts to two decimal places.) ÷ = Indirect cost per unit Commercial containers ÷ = Travel packs ÷ = Requirement 2. Compute the predetermined overhead allocation rate for each activity. Begin by selecting the formula to calculate the predetermined overhead (OH) allocation rate. Then enter the amounts to compute the allocation rate for each activity. (Abbreviation used: qty = quantity. Round your answers to the nearest whole dollar.) Predetermined OH ÷ = allocation rate Materials handling ÷ = Packaging ÷ = Quality assurance ÷ = Requirement 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. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.) Begin by selecting the formula to allocate overhead (OH) costs. × = Allocated mfg. overhead costs Compute the total activity-based costs allocated to commercial containers, and then compute the cost per unit for commercial containers. Finally, compute the total activity-based costs allocated to travel packs then compute the cost per unit for travel packs. (Round the cost per unit to two decimal places.) Commercial containers Materials handling Packaging Quality assurance Total activity-based costs Number of units Activity-based cost per unit Travel packs Requirement 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. Relative to activity-based costing (ABC), the traditional system ▼ over-costs under-costs the commercial containers and ▼ over-costs under-costs the travel packs. The traditional system allocates overhead costs solely on ▼ kilos handled. machine hours. samples tested. Activity-based costing (ABC) recognizes that although commercial containers require ▼ fewer more machine hours per unit than travel packs, they ▼ do not require require the same proportion of material handling and quality assurance. Activity Estimated Indirect Costs Allocation Base Estimated Quantity 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 5,600 Machine hours 1,920 560 Number of samples 480 840
Maloney 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: LOADING... (Click the icon to view the information.) Read the requirements LOADING... . Requirement 1. Maloney's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $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. Select the formula, and then enter the amounts to compute the indirect cost per unit for each product. (Abbreviation used: mfg. = manufacturing. Round dollar amounts to two decimal places.) ÷ = Indirect cost per unit Commercial containers ÷ = Travel packs ÷ = Requirement 2. Compute the predetermined overhead allocation rate for each activity. Begin by selecting the formula to calculate the predetermined overhead (OH) allocation rate. Then enter the amounts to compute the allocation rate for each activity. (Abbreviation used: qty = quantity. Round your answers to the nearest whole dollar.) Predetermined OH ÷ = allocation rate Materials handling ÷ = Packaging ÷ = Quality assurance ÷ = Requirement 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. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.) Begin by selecting the formula to allocate overhead (OH) costs. × = Allocated mfg. overhead costs Compute the total activity-based costs allocated to commercial containers, and then compute the cost per unit for commercial containers. Finally, compute the total activity-based costs allocated to travel packs then compute the cost per unit for travel packs. (Round the cost per unit to two decimal places.) Commercial containers Materials handling Packaging Quality assurance Total activity-based costs Number of units Activity-based cost per unit Travel packs Requirement 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. Relative to activity-based costing (ABC), the traditional system ▼ over-costs under-costs the commercial containers and ▼ over-costs under-costs the travel packs. The traditional system allocates overhead costs solely on ▼ kilos handled. machine hours. samples tested. Activity-based costing (ABC) recognizes that although commercial containers require ▼ fewer more machine hours per unit than travel packs, they ▼ do not require require the same proportion of material handling and quality assurance. Activity Estimated Indirect Costs Allocation Base Estimated Quantity 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 5,600 Machine hours 1,920 560 Number of samples 480 840
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Maloney
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:LOADING...
(ClickRead the
requirements
LOADING...
.Requirement 1.
overhead allocation rate costing system allocated indirect costs to products at
Maloney's
original single plantwide $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.Select the formula, and then enter the amounts to compute the indirect cost per unit for each product. (Abbreviation used: mfg. = manufacturing. Round dollar amounts to two decimal places.)
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÷
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=
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Indirect cost per unit
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Commercial containers
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÷
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=
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Travel packs
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÷
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=
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Requirement 2. Compute the predetermined overhead allocation rate for each activity.
Begin by selecting the formula to calculate the predetermined overhead (OH) allocation rate. Then enter the amounts to compute the allocation rate for each activity. (Abbreviation used: qty = quantity. Round your answers to the nearest whole dollar.)
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Predetermined OH
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÷
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=
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allocation rate
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Materials handling
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÷
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=
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Packaging
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÷
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=
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Quality assurance
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÷
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=
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Requirement 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.
(Hint:
First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)Begin by selecting the formula to allocate overhead (OH) costs.
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×
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=
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Allocated mfg. overhead costs
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Compute the total activity-based costs allocated to commercial containers, and then compute the cost per unit for commercial containers. Finally, compute the total activity-based costs allocated to travel packs then compute the cost per unit for travel packs. (Round the cost per unit to two decimal places.)
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Commercial containers
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Materials handling
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Packaging
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Quality assurance
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Total activity-based costs
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Number of units
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Activity-based cost per unit
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Travel packs
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Requirement 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.
Relative to activity-based costing (ABC), the traditional system
the commercial containers and
the travel packs.
▼
over-costs
under-costs
▼
over-costs
under-costs
The traditional system allocates overhead costs solely on
Activity-based costing (ABC) recognizes that although commercial containers require
machine hours per unit than travel packs, they
the same proportion of material handling and quality assurance.
▼
kilos handled.
machine hours.
samples tested.
▼
fewer
more
▼
do not require
require
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Activity
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Estimated Indirect Costs
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Allocation Base
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Estimated Quantity of Allocation Base
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|---|---|---|---|
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Materials handling
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$98,000
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Number of kilos
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24,500 kilos
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Packaging
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209,000
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Number of machine hours
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2,786 hours
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Quality assurance
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124,500
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Number of samples
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2,075 samples
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Total indirect costs
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$431,500
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Actual production information includes the following:
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Commercial Containers
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Travel Packs
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Units produced
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2,400 containers
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56,000 packs
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Weight in kilos
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12,000
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5,600
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Machine hours
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1,920
|
560
|
|
Number of samples
|
480
|
840
|
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