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Chapter 19: Q33PGA_3 (page 1076)

Willitte 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:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 95,000 Number of kilos 19,000 kilos

Packaging 200,000 Number of machine hours 5,000 hours

Quality assurance 112,500 Number of samples 1,875 samples

Total indirect costs \) 407,500

Actual production information includes the following:

Commercial Containers Travel Packs

Units produced 2,400 containers 50,000 packs

Weight in kilos 9,600 5,000

Machine hours 1,680 500

Number of samples 240 750

Requirements

3. 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. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

Short Answer

Expert verified

Activity-based cost per unit

For Commercial Containers:$54

For Travel Packs:$1.8

Step by step solution

01

Computation for Commercial containers

02

Computation for Travel Packs

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Most popular questions from this chapter

The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):

Direct materials cost \( 80.00

Direct labor cost 20.00

Activity-based costs allocated ?

Total manufacturing product cost ?

The activities required to build the component follow:

Activity Allocation Base Cost Allocated to Each Unit

Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00

Dip insertion Number of dip insertions ? * 0.30 = 9.60

Manual insertion Number of manual insertions 10 * 0.50 = ?

Wave solder Number of components soldered 4 * 1.90 = 7.60

Backload Number of backload insertions 7 * ? = 4.20

Test Number of testing hours 0.43 * 90.00 = ?

Defect analysis Number of defect analysis hours 0.15 * ? = 12.00

Total activity-based costs \) ?

Requirements

2. Why might managers favor this ABC system instead of Alright’s older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?

Question:Refer to Exercise E19-26. Western desires a 20% target net profit after covering all costs. Considering the total costs assigned to the Halbert engagement in Exercise E19-26, what would Western have to charge the customer to achieve that net profit? Roundto two decimal places.

“Prevention is much cheaper than external failure.” Do you agree with this statement? Why or why not?

How can ABM be used by service companies?


Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:

a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, \(13,000.

b. Lost profits from lost sales due to reputation for less-than-perfect products, \)35,000.

c. Costs of inspecting components in one of Darrel’s production processes, \(40,000.

d. Salaries of engineers who are redesigning components to withstand electrical overloads, \)65,000.

e. Costs of reworking defective components after discovery by company inspectors, \(50,000.

f. Costs of electronic components returned by customers, \)70,000.

Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.
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