Question - Tuscola Pharmacy is a drug store that has traditionally allocated its overhead based on the number of prescriptions in each customer's order. Some orders come from walk-in customers and other orders come from an arrangement with a local ready care clinic to fill orders for its clients. Tuscola's general manager would like to simplify operations and accept either walk-in customers or clinic clients, but not both. The controller provided the following information about overhead costs using activity-based costing to assist the manager in making the decision:
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Cost Pools
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Total Annual Estimated Costs
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Cost Driver
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Total Annual Estimated Cost Driver Activity
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Pharmacy occupancy costs (i.e., utilities, rent, and other costs)
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$96,000
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Technician hours
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8,800
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Packaging supplies (i.e., bottles, bags, and other packaging)
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$35,000
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Number of prescriptions
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16,000
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Professional training and insurance costs
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$96,000
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Pharmacists hours
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4,400
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Total pharmacy overhead
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$227,000
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Customer Order Number
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Technician Hours
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Number of Prescriptions
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Pharmacist Hours
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#R1137
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0.4
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3
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0.6
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#S2013
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0.4
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1
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0.2
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Tuscola's accounting clerk gathered the following information regarding two recent pharmacy orders. Orders starting with "R" relate to walk-in customers and those starting with "S" relate to clinic clients. Answer the following questions.
1. Calculate the amount of overhead that would be charged to order #R1137 if traditional costing rates were used.
2. How much overhead would be allocated to order #R1137 if activity-based costing was used?
3. By how much is Order #S2013 over- or under-costed when using traditional costing compared to ABC costing? Enter an over-costed amount as a positive number and under-costed amount as a negative number.
Please give answers with process.