MedTech Inc. manufactures and sells diagnostic equipment used in the medical profession. Its job costing system was designed using an activitybased 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 $20 per hour and that there were no beginning inventories. The following information was available for 2019, based on an expected production level of 400,000 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 MedTech.

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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Cost Driver Used as Allocation Base Number of parts used Number of machine hours Direct labor hours worked Number of units tested Activity Cost Allocation Rate Budgeted Costs for 2016 Cost Driver Materials handling Milling and grinding Assembly and inspection Testing $ 1.50 per part 11.00 per hour 5.00 per hour 3.00 per unit $3,600,000 8,800,000 6,000,000 1,200,000 Direct Materials Costs $3,500,000 Number of Parts Used 275,000 Machine Hours Units Direct Labor Hours Produced/Tested 160,000 50,000 95,000