All applicable Problems are available with McGraw-Hill’s Connect™Accounting. Activity-based costing 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 $25 per hour and thatthere 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 Budgeted Cost Driver Used Cost(Cost Driver) Costs for 2013 as Allocation Base Allocation RateMaterials handling $1,200,000 Number of parts used $ 2.00 per partMilling and grinding 2,200,000 Number of machine hours 11.00 per hourAssembly and inspection 1,500,000 Direct labor hours worked 5.00 per hour Testing 300,000 Number of units tested 3.00 per unitThe following production, costs, and activities occurred during the month of August: Units Direct Number Machine DirectProduced/Tested Materials Costs of Parts Used Hours Labor Hours10,000 $900,000 62,000 18,000 35,000Required: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. (Note: You do not have to calculate the overhead that would be applied for the month of August using this alternative method.)
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.
All applicable Problems are available with McGraw-Hill’s Connect™
Accounting. Activity-based costing MedTech, Inc., manufactures and sells diagnostic equipment used in the medical profession. Its
Activity Budgeted Cost Driver Used Cost
(Cost Driver) Costs for 2013 as Allocation Base Allocation Rate
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
The following production, costs, and activities occurred during the month of August: 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
Required:
a. Calculate the total
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.)
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