Werner Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Werner varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its overhead based on the number of prescription in each order. For example, a customer may bring in three prescriptions to be filled on the same day; the pharmacy considers this to be one order.

The pharmacy chain’s controller is exploring whether activity- based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders. The controller has gathered the following information:

The clerk for Werner Pharmacy has gathered the following information regarding two recent pharmacy orders:

Requirements
1. What is the traditional overhead rate based on the number of prescriptions?
2. How much pharmacy overhead would be allocated to customer order number 1102 if traditional overhead allocation based on the number of prescriptions is used?
3. How much pharmacy overhead would be allocated to customer order number 1103 if traditional overhead allocation based on the number of prescriptions is used?
4. What are the following cost pool allocation rates?
a. Pharmacy occupancy costs
b. Packing supplies
c. Professional training and insurance costs
5. How much would be allocated to customer order number 1102 if activity- based ­costing (ABC) is used to allocate the pharmacy overhead costs?
6. How much would be allocated to customer order number 1103 if activity- based ­costing (ABC) is used to allocate the pharmacy costs?
7. Which allocation method (traditional or activity- based costing) would produce a more accurate product cost? Explain youranswer.

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Total Annual Estimated Cost $96,000 Total Annual Estimated Cost Driver Activity 80,000 Cost Pools Pharmacy occupancy costs (utilities, rent, and other costs). Packaging supplies (bottles, bags, and other packaging) Professional training and insurance costs.. Cost Driver 35,000 Number of prescriptions... 25,000 96,000 227,000 Pharmacists hours.. 24,000 Total pharmacy ovorhead