MedTech Inc. manufactures and sells diagnostic equipment used in the medical profession. Its job costing system was designed using an activity-based costing approach. Direct materials and direct labor costs are accumulated separately, along with information concerning four manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $17 per hour and that there were no beginning inventories. The following information was available for 2019, based on an expected production level of 600,000 units for the year:
Activity Budgeted Costs for 2010 Cost Driver Used as Allocation Base Cost Allocation Rate
(Cost Driver)
Materials handling $1,200,000 Number of parts used $2.00 per part
Milling and grinding 2,200,000 Number of machine hours 11.00 per hour
Assembly and inspection 1,500,000 Direct labor hours worked 5.00 per hour
Testing 300,000 Number of units tested 3.00 per unit
Units Produced/Tested Direct Materials Costs Number of Parts Used Machine Hours Direct Labor Hours
10,000 $900,000 62,000 18,000 35,000
Required:
a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for MedTech, Inc.
b. Explain the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours.
Answers: 1
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MedTech Inc. manufactures and sells diagnostic equipment used in the medical profession. Its job cos...
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