ACCT 610: ACCT 610 Accounting for Managers Assignment
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 $23 per hour and that there were no beginning inventories. The following information was available for 2016, based on an expected production level of 280,000 units for the year:
|
Activity Cost Driver
|
Budgeted Costs for 2016
|
Cost Driver Used as Allocation Base
|
Cost Allocation Rate
|
|
Materials handling
|
$5,500,000
|
Number of parts used
|
$3.75 per part
|
|
Milling and grinding
|
8,400,000
|
Number of machine hours
|
13.00 per part
|
|
Assembly and inspection
|
5,400,000
|
Direct labor hours worked
|
4.50 per hour
|
|
Testing
|
1,400,000
|
Number of units tested
|
5.00 per hour
|
The following production, costs, and activities occurred during the month of August:
|
Units Produced/Tested
|
Direct Materials Costs
|
Number Parts Used
|
Machine Hours
|
Direct Labor
|
|
53,000
|
$3,500,000
|
290,000
|
90,000
|
175,000
|
Required:
a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for MedTech, Inc.
b. Which of the following are 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.) (Select all that apply.)
- ABC does not help in decision-making.
- ABC systems produce more accurate financial information.
- ABC approach is likely to provide better information to manufacturing managers.
- ABC helps in decision-making.
- ABC systems produce more accurate product costing information.