Sawyer Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules

Question:

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

Requirements
1. Compute the predetermined overhead allocation rate for each activity.
2. 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.
3. Sawyerâ€™s original single plantwide rate system allocated indirect costs to products at \$ 136.56 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.
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 as theydid.

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