1. Zeta Pharmaceuticals

Scenario: Cost Allocation Methods

Data: Zeta Pharmaceuticals allocates overhead costs using direct labor hours and machine hours. The following data is available for the year:

• Total Overhead Costs: $500,000
• Direct Labor Hours: 20,000
• Machine Hours: 15,000

Requirements:

1. Allocate overhead costs using the direct labor hours method.
2. Allocate overhead costs using the machine hours method.
3. Calculate the overhead rate per unit of direct labor hour and machine hour.
4. Compare the differences in cost allocation between the two methods.
5. Discuss the advantages and disadvantages of each allocation method for Zeta Pharmaceuticals.
6. Evaluate the impact of allocating overhead costs on Zeta Pharmaceuticals' product pricing decisions.