Gibson Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe. Gibson is trying to win market share...

   

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Gibson Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe. Gibson is trying to win market share from Sudafed and Tylenol. The company has developed several different Breathe products tailored to specific markets. For example, the company sells 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. Data table Activity Materials handling Packaging.. Quality assurance Total indirect costs $ $ Estimated Indirect Activity Costs Allocation Base 130,000 Kilos 460,000 Machine hours 118,000 Samples 708,000 Estimated Quantity of Allocation Base 13,000 kilos 2,300 hours 2,000 samples The commercial-container Breathe product line had a total weight of 8,096 kilos, used 1,800 machine hours, and required 260 samples. The travel-pack line had a total weight of 5,976 kilos, used 600 machine hours, and required 360 samples. Gibson produced 2,700 commercial containers of Breathe and 30,000 travel packs, I 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. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit.) 3. The company's original single-allocation-based cost system allocated indirect costs to products at $300 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 original system. How have the unit costs changed? Explain why the costs changed as they did. Gibson Pharmaceuticals manufactures an over-the-counter allergy medication called Breathe. Gibson is trying to win market share from Sudafed and Tylenol. The company has developed several different Breathe products tailored to specific markets. For example, the company sells 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. Data table Activity Materials handling Packaging.. Quality assurance Total indirect costs $ $ Estimated Indirect Activity Costs Allocation Base 130,000 Kilos 460,000 Machine hours 118,000 Samples 708,000 Estimated Quantity of Allocation Base 13,000 kilos 2,300 hours 2,000 samples The commercial-container Breathe product line had a total weight of 8,096 kilos, used 1,800 machine hours, and required 260 samples. The travel-pack line had a total weight of 5,976 kilos, used 600 machine hours, and required 360 samples. Gibson produced 2,700 commercial containers of Breathe and 30,000 travel packs, I 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. (Hint: Compute the total activity costs allocated to each product line and then compute the cost per unit.) 3. The company's original single-allocation-based cost system allocated indirect costs to products at $300 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 original system. How have the unit costs changed? Explain why the costs changed as they did.

Answer rating: 100% (QA)

ANSWERS 1Computing the Cost Allocation Rate for Each Activity To determine the cost allocation rate for each activity we need to divide the estimated indirect costs by the estimated quantity of the al... View the full answer