Activity-based costing MedTech, Inc., manufactures and sells diagnostic equip- ment used in the medical profession. Its job costing systern was designed using an divity-based costing approach. Direct materials and direct labor costs are accumu- lated 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 2013, based on an expected production level of 100,000 units for the year: Activity (Cost Driver) Budgeted Costs for 2013 Cost Driver Used Cost as Allocation Base Allocation Rate Materials handling $1,200,000 Number of parts used $ 2.00 per part 11.00 per hour 5.00 per 2,200,000 Number of machine hours Milling and grinding Assembly and inspection Testing 1,500,000 Direct labor hours worked hour 300,000 Number of units tested 3.00 per unit The following production, costs, and activities occurred during the month of August: Machine Direct Number Units Direct Hours Labor Hours of Parts Used Produced/Tested Materials Costs 35,000 18,000 62,000 10,000 $900,000 a. Calculate the total manufacturing costs and the cost per unit produced and teste during the month of August for MedTech, Inc. D. Explain the advantages of the ABC approach relative to using a single predeter mined 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 Required: uathod.)
Activity-based costing MedTech, Inc., manufactures and sells diagnostic equip- ment used in the medical profession. Its job costing systern was designed using an divity-based costing approach. Direct materials and direct labor costs are accumu- lated 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 2013, based on an expected production level of 100,000 units for the year: Activity (Cost Driver) Budgeted Costs for 2013 Cost Driver Used Cost as Allocation Base Allocation Rate Materials handling $1,200,000 Number of parts used $ 2.00 per part 11.00 per hour 5.00 per 2,200,000 Number of machine hours Milling and grinding Assembly and inspection Testing 1,500,000 Direct labor hours worked hour 300,000 Number of units tested 3.00 per unit The following production, costs, and activities occurred during the month of August: Machine Direct Number Units Direct Hours Labor Hours of Parts Used Produced/Tested Materials Costs 35,000 18,000 62,000 10,000 $900,000 a. Calculate the total manufacturing costs and the cost per unit produced and teste during the month of August for MedTech, Inc. D. Explain the advantages of the ABC approach relative to using a single predeter mined 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 Required: uathod.)
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 3PA: Activity-based and department rate product costing and product cost distortions Black and Blue...
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Activity-based costing MedTech, Inc., manufactures and sells diagnostic equip-
ment used in the medical profession. Its job costing system was designed using an
otivity-based costing approach. Direct materials and direct labor costs are accumu-
lated 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
2013, based on an expected production level of 100,000 units for the year:
Activity
(Cost Driver)
Budgeted
Costs for 2013
Cost Driver Used
Cost
as Allocation Base
Allocation Rate
Materials handling
$1,200,000
Number of parts used
$ 2.00 per part
Milling and grinding
Assembly and inspection
Testing
2,200,000
Number of machine hours
11.00 per hour
5.00 per hour
1,500,000
Direct labor hours worked
300,000
Number of units tested
3.00 per unit
The following production, costs, and activities occurred during the month of August:
Number
Machine
Direct
Units
Direct
of Parts Used
Hours
Labor Hours
Produced/Tested
Materials Costs
62,000
18,000
35,000
10,000
$900,000
Required:
a. Calculate the total manufacturing costs and the cost per unit produced and teste
during the month of August for MedTech, Inc.
D. Explain the advantages of the ABC approach relative to using a single predeter
mined 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.)
arhoad allocation metho
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