ADA Pharmaceutical Company produces three drugs: Diomycin, Homycin, and Addolin

Question

ADA Pharmaceutical Company produces three drugs: Diomycin, Homycin, and Addolin
belonging to the analgesic (pain-killer) family of medication. Since its inception four
years ago, ADA has used a direct labor hour-based system to assign manufacturing
overhead costs to products. The company is considering moving to activity-based
costing.

ADA has the following budget information for the year:

Diomycin Homycin Addolin
Cost of direct materials $205,000 $265,000 $258,000
Cost of direct labor $250,000 $234,000 $263,000
Number of direct labor hours 7,200 6,800 2,000
Number of capsules 1,000,000 500,000 300,000

ADA has identified the following activities as cost drivers and has allocated them to total
overhead cost of $250,000 as follows:


Activity

Cost Driver
Budgeted
Overhead Cost
Budgeted Cost
Driver Volume
Machine setup Setup hours $16,000 1,600
Plant management Workers 36,000 1,200
Supervision Direct labor hours 46,000 1,150
Quality inspection Inspection hours 50,400 1,050
Expediting orders Customers served 51,600 645
Total overhead $200,000 The company gathered the following information about the cost driver volume for each
product:

Diomycin Homycin Addolin
Machine setups 200 600 800
Plant management 200 400 600
Supervision 200 300 650
Quality inspection 150 200 700
Expediting orders 45 100 500

Required
a. Use the firm’s current costing system to calculate the total unit cost of each product.
b. Use the activity-based costing system to calculate the total unit cost of each product.

Explanation / Answer

ADA Pharmaceutical Company produces three drugs: Diomycin, Homycin, and Addolin

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.