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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
Indirect Activity
Allocation Base Estimated
Quantity of
Allocation Base
Materials handling $95,000 Kilos 19,000 kilos    
Packaging 219,000 Machine hours 5,475 hours    
Quality assurance 124,500 Samples 2,075 samples    
Total indirect costs $438,500        
Other production information
includes the following:
Commercial Containers Travel Packs      
Units produced 3,500 containers 57,000 packs      
Weight in kilos 14,000 5,700      
Machine hours 2,625 570      
Number of samples 700 855      
1. Compute the cost allocation rate for each
2. Use the
activity-based cost allocation rates to compute the activity costs per unit
of the commercial containers and the travel packs. (Hint: First compute the total activity
cost allocated to each product line, and then compute the cost per unit.)
3. Corbertt’s
original single-allocation-base costing system allocated indirect costs to
produce at $157 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
indirect activity-based costs per unit to the indirect costs per unit from
the single-allocation-base system. How have the unit costs changed? Explain
why the
costs changed.

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