2.99 See Answer

Question: Med Tech, Inc. manufactures and sells diagnostic

Med Tech, 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 $25 per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 100,000 units for the year:
Med Tech, 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 $25 per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 100,000 units for the year:


The following production, costs, and activities occurred during the month of August:


Required:
a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for Med Tech, Inc.
b. Explain the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours. (Note: You do not have to calculate the overhead that would be applied for the month of August using this alternative method.)

The following production, costs, and activities occurred during the month of August:
Med Tech, 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 $25 per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 100,000 units for the year:


The following production, costs, and activities occurred during the month of August:


Required:
a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for Med Tech, Inc.
b. Explain the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours. (Note: You do not have to calculate the overhead that would be applied for the month of August using this alternative method.)

Required: a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for Med Tech, Inc. b. Explain the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours. (Note: You do not have to calculate the overhead that would be applied for the month of August using this alternative method.)





Transcribed Image Text:

Cost Driver Used Activity (Cost Driver) Budgeted Costs for 2010 Cost as Allocation Base Allocation Rate $ 2.00 per part Materials handling Milling and grinding Assembly and inspection Testing $1,200,000 2,200,000 Number of parts used Number of machine hours 11.00 per hour 5.00 per hour 3.00 per unit 1,500,000 Direct labor hours worked 300,000 Number of units tested Units Direct Number Machine Direct Produced/Tested Materials Costs of Parts Used Hours Labor Hours 10,000 $900,000 62,000 18,000 35,000



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2.99

See Answer