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Westford Pharmacy, part of a large chain of pharmacies, fills a variety of prescriptions for customers. The complexity of prescriptions filled by Westford varies widely; pharmacists can spend between five minutes and six hours on a prescription order. Traditionally, the pharmacy has allocated its overhead based on the number of prescriptions. The pharmacy chain's controller is exploring whether activity-based costing (ABC) may better allocate the pharmacy overhead costs to pharmacy orders.

The controller has gathered the following information:

					Total Annual
		Total Annual			Estimated Cost
	Cost Pools	Estimated Cost		Cost Driver	Driver Activity
	Pharmacy occupancy costs (utilities, rent, and			Technician hours. . . . . . . . . .	85,000
	other costs). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$102,000
	Packaging supplies (bottles, bags, and other			Number of prescriptions. . . .	24,000
	packaging). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$31,200
	Professional training and insurance costs. . . . . .	$168,000		Pharmacist hours. . . . . . . . . .		24,000
	Total pharmacy overhead. . . . . . . . . . . . . . . . . . .	$301,200

The clerk for Westford has gathered the following information regarding two recent pharmacy orders:

Customer Order	Technician	Number of	Pharmacist
Number	Hours	Prescriptions	Hours
1245	0.5	5	1.0
1246	0.5	3	3.5

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1.	What is the traditional overhead rate based on the number of prescriptions?
2.	How much pharmacy overhead would be allocated to customer order number 1245 if traditional overhead allocation based on the number of prescriptions is used?
3.	How much pharmacy overhead would be allocated to customer order number 1246 if traditional overhead allocation based on the number of prescriptions is used?
4.	What are the following cost pool allocation rates: a. Pharmacy occupancy costs b. Packaging supplies c. Professional training and insurance costs
5.	How much would be allocated to customer order number 1245 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
6.	How much would be allocated to customer order number 1246 if activity-based costing (ABC) is used to allocate the pharmacy overhead costs?
7.	Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer.

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