Willitte Pharmaceuticals manufacturers

| June 23, 2015

Willitte Pharmaceuticals manufacturers an over-th-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: Materials handling…$115,000 estimated indirect activity costs; 23,000 kilos estimated qty. of allocation base Packaging…$204,000 estimated indirect activity costs; 2,125 machine hours estimated qty. of allocation base Quality assurance…$118,000 estimated indirect activity costs; 2,000 samples estimated qty. of allocation base TOTAL INDIRECT COSTS $437,000 estimated indirect activity costs “Other production information includes the following:” 1) Units produced…2,4000 commercial containers; 41,000 travel packs 2) Weight in Kilos….8,000 commercial containers; 6,000 travel packs 3) Machine hours…1,5000 commercial containers; 500 travel packs 4) Number of samples…200 commercial containers; 300 travel packs REQUIREMENTS 1. Compute the cost allocation rate for each activity. 2. Use the activity-based cost allocation rates to compute the activity costs per unit of hte commercial containers and the travel packs (Hint: First compute the cost per unit). 3.Willitte’s original single-allocation-base costing system allocated indirect costs to products at $158 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 single-allocation-base system. How have the units changed? Explain why the costs changed.

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Tuxedo Corporation

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