Posted: April 19th, 2016

How have the unit costs changed?

Corbertt 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 attached information has been developed to determine if an activity-
based costing system would be beneficial:

Data table attached.

Other production information includes the following: Commercial Containers Travel Packs Units Produced 2,800 containers 43,000 packs Weight in Kilos 8,000 6,000 Machine Hours 1,800 600 Number of Samples 100 200

1. Compute the cost allocation rate for each activity.
2. Use the activity-based cost allocation rates to compute the activity costs per unit
of the commercial containers and the travel packs. (Hint: First compute the total
activity costs allocated to each product line, and then compute the cost per unit.)
3. Corbertt’s original single-allocation-base costing system allocated indirect costs
to products at $152 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.
4. Compare the activity-based costs per unit to the costs from the single-allocation-
base system. How have the unit costs changed? Explain why the costs changed as
they did.

This question has the following supporting file(s):

Case 1.pdf

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