Gibson Pharmaceuticalsmanufactures an over- the- counter allergy medication called Breathe. Gibson is trying to win market share
Question:
The commercial- container Breathe product line had a total weight of 8,200 kilos, used 900 machine hours, and 210 required samples. The travel- pack line had a total weight of 6,200 kilos, used 300 machine hours, and required 310 samples. The company produced 2,800 commercial containers of Breathe and 80,000 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.
3. The companys original single- allocation- based cost system allocated indirect costs to products at $ 450 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 simpler original system. How have the unit costs changed? Explain why the costs changed as they did.
Step by Step Answer: