! Required information Problem 5-45 Volume-Based Costing versus ABC [LO 5-1, 5-3, 5-5] [The following information applies to the questions displayed below.] ADA Pharmaceutical Company produces three drugs-Diomycin, Homycin, and Addolin-belonging to the analgesic (pain- killer) family of medication. Since its inception four years ago, ADA has used a direct labor hour-based system to assign manufacturing overhead costs to products. Eme Weissman, the president of ADA Pharmaceutical, has just read about activity-based costing in a trade journal. With some curiosity and interest, she asked her financial controller, Takedo Simon, to examine differences in product costs between the firm's current costing and activity-based costing systems. ADA has the following budget information for the year: Homycin $271,000 Diomycin $211,000 256,000 7,260 1,060,000 Addolin Cost of direct materials $264,000 269,000 2,060 306,000 Cost of direct labor 240,000 6,860 506,000 Number of direct labor hours Number of capsules ADA has identified the following activities and cost drivers and has assigned them a total overhead cost of $203,000. Budgeted Cost Budgeted Overhead Driver Cost Activity Machine setup Plant management Supervision of direct labor Quality inspection Order expediting Cost Driver Volume $ 16,600 36,600 46,600 51,000 52,200 1,660 Setup hours 1,260 16,600 1,080 Number of Workers Direct labor hours Inspection hours 675 Customers served $203,000 Total overhead Takedo selected the cost drivers with the following justifications: SETUP HOURS: The cost driver of setup hours is used because the same product takes about the same amount of setup time regardless of size of batch. For different products, however, the setup time varies. NUMBER OF WORKERS: Plant management includes plant maintenance and corresponding managerial duties that make production possible. This activity depends on the number of workers. The more workers involved, the higher the cost. DIRECT LABOR HOURS: Supervisors spend their time supervising production. The amount of time they spend on each product is proportional to the direct labor hours worked INSPECTION HOURS: Inspection involves testing a number of units in a batch. The time varies for different products but is the same for all similar products. NUMBER OF CUSTOMERS SERVED: The need to expedite production increases as the number of customers served by the company increases. Thus, the number of customers served by ADA is a good measure of expediting production orders. Takedo gathered the following information about the cost driver volume for each product: Diomycin Homycin Addolin Setup hours Number of workers 830 230 630 230 630 430 Direct labor hours 7,260 6,860 2,060 Inspection hours 180 230 730 530 Customers served 51 106 Part 1 Required: 1. Use the firm's current costing system to calculate the unit cost of each product. 2. Use the activity-based cost system to calculate the unit cost of each product Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the firm's current costing system to calculate the unit cost of each product. (Round intermediate calculations to 2 decimal places. Round "Cost per capsule" to 2 decimal places.) Diomycin Homycin Addolin 211,000.00 $ $ $ Direct Materials 271,000.00 264,000.00 $ 256,000.00 $ $ Direct Labor 240,000.00 269,000.00 Overhead Total Cost Packets produced 1,060,000.00 $ $ $ 506,000.00 306,000.00 Cost per capsule Required: 1. Use the firm's current costing system to calculate the unit cost of each product. 2. Use the activity-based cost system to calculate the unit cost of each product. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the activity-based cost system to calculate the unit cost of each product. (Round intermediate calculations to 2 decimal places. Round "Cost per capsule" to 2 decimal places.) Diomycin Homycin Addolin 211,000.00 $ $ $ 271,000.00 Direct Materials 264,000.00 256,000.00 $ 240,000.00 $ $ Direct Labor 269,000.00 Overhead Total Cost Packets produced $ 1,060,000.00 $ 506,000.00 $ 306,000.00 Cost per capsule Required 1 Required 2 ! Required information Problem 5-45 Volume-Based Costing versus ABC [LO 5-1, 5-3, 5-5] [The following information applies to the questions displayed below.] ADA Pharmaceutical Company produces three drugs-Diomycin, Homycin, and Addolin-belonging to the analgesic (pain- killer) family of medication. Since its inception four years ago, ADA has used a direct labor hour-based system to assign manufacturing overhead costs to products. Eme Weissman, the president of ADA Pharmaceutical, has just read about activity-based costing in a trade journal. With some curiosity and interest, she asked her financial controller, Takedo Simon, to examine differences in product costs between the firm's current costing and activity-based costing systems. ADA has the following budget information for the year: Homycin $271,000 Diomycin $211,000 256,000 7,260 1,060,000 Addolin Cost of direct materials $264,000 269,000 2,060 306,000 Cost of direct labor 240,000 6,860 506,000 Number of direct labor hours Number of capsules ADA has identified the following activities and cost drivers and has assigned them a total overhead cost of $203,000. Budgeted Cost Budgeted Overhead Driver Cost Activity Machine setup Plant management Supervision of direct labor Quality inspection Order expediting Cost Driver Volume $ 16,600 36,600 46,600 51,000 52,200 1,660 Setup hours 1,260 16,600 1,080 Number of Workers Direct labor hours Inspection hours 675 Customers served $203,000 Total overhead Takedo selected the cost drivers with the following justifications: SETUP HOURS: The cost driver of setup hours is used because the same product takes about the same amount of setup time regardless of size of batch. For different products, however, the setup time varies. NUMBER OF WORKERS: Plant management includes plant maintenance and corresponding managerial duties that make production possible. This activity depends on the number of workers. The more workers involved, the higher the cost. DIRECT LABOR HOURS: Supervisors spend their time supervising production. The amount of time they spend on each product is proportional to the direct labor hours worked INSPECTION HOURS: Inspection involves testing a number of units in a batch. The time varies for different products but is the same for all similar products. NUMBER OF CUSTOMERS SERVED: The need to expedite production increases as the number of customers served by the company increases. Thus, the number of customers served by ADA is a good measure of expediting production orders. Takedo gathered the following information about the cost driver volume for each product: Diomycin Homycin Addolin Setup hours Number of workers 830 230 630 230 630 430 Direct labor hours 7,260 6,860 2,060 Inspection hours 180 230 730 530 Customers served 51 106 Part 1 Required: 1. Use the firm's current costing system to calculate the unit cost of each product. 2. Use the activity-based cost system to calculate the unit cost of each product Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the firm's current costing system to calculate the unit cost of each product. (Round intermediate calculations to 2 decimal places. Round "Cost per capsule" to 2 decimal places.) Diomycin Homycin Addolin 211,000.00 $ $ $ Direct Materials 271,000.00 264,000.00 $ 256,000.00 $ $ Direct Labor 240,000.00 269,000.00 Overhead Total Cost Packets produced 1,060,000.00 $ $ $ 506,000.00 306,000.00 Cost per capsule Required: 1. Use the firm's current costing system to calculate the unit cost of each product. 2. Use the activity-based cost system to calculate the unit cost of each product. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Use the activity-based cost system to calculate the unit cost of each product. (Round intermediate calculations to 2 decimal places. Round "Cost per capsule" to 2 decimal places.) Diomycin Homycin Addolin 211,000.00 $ $ $ 271,000.00 Direct Materials 264,000.00 256,000.00 $ 240,000.00 $ $ Direct Labor 269,000.00 Overhead Total Cost Packets produced $ 1,060,000.00 $ 506,000.00 $ 306,000.00 Cost per capsule Required 1 Required 2