Razorback Remedies produces a natural allergy treatment in tablet form.

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Number of samples

750

4,250

Required

1.      Razorback’s current system allocates indirect cost to products on the basis of machine hours. Calculate the predetermined overhead application rate per machine hour.

2.      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 container for large and small containers.

3.      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.

4.      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 container for large and small containers.

5.      Compare the indirect activity-based cost per container to the indirect cost per container from the current (traditional) system. How have costs per container changed? Explain why the costs changed as they did.

6.      Should Razorback convert to activity-based costing? Provide an appropriate justification for your decision.

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