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# Purdue University Razorback Remedies Activity Based Costing System Calculations

Purdue University Razorback Remedies Activity Based Costing System Calculations.

### Question Description

Razorback Remedies produces a natural allergy treatment in tablet form.The company sells large containers of 1,000 tablets to university health centers and small containers of 50 tablets to health food stores.The company is considering adopting an activity-based costing system and the accountant gathered the following information

 Activity Estimated Indirect Cost Cost Driver Estimated Activity Materials handling \$350,000 Pounds 58,000 pounds Packaging 500,000 Machine Hours 8,000 hours Quality control 250,000 Number of Samples 6,000 samples Total indirect costs \$1,100,000

Other production information follows:

 Large Containers Small Containers Units produced 20,000 180,000 Weight in pounds 40,000 18,000 Machine hours 6,000 2,000 Number of samples 1,000 5,000

Required

• Razorback’s current system allocates indirect cost to products on the basis of machine hours.Calculate the predetermined overhead application rate per machine hour.
• Use the overhead application rate per machine hour to compute the indirect cost applied to each product line (large containers and small containers).In addition, calculate the indirect cost per unit for large and small containers.
• Assuming the company wants to convert to an activity-based system, calculate the cost per unit of cost driver for each activity in the first chart above.
• Use the cost per unit of cost driver to compute the indirect cost applied to each product line (large containers and small containers).In addition, calculate the indirect cost per unit for large and small containers.
• Compare the indirect activity-based cost per unit to the indirect cost per unit from the current (traditional) system.How have unit costs changed?Explain why the costs changed as they did.
• Should Razorback convert to activity-based costing?Provide an appropriate justification for your decision.

Purdue University Razorback Remedies Activity Based Costing System Calculations

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