HealthTech 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 $22 per hour and that there were no beginning inventories. The following information was available for 2022, based on an expected production level of 200,000 units for the year:

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

Required:
a. Calculate the total manufacturing costs and the cost per unit produced and tested during the month of April for HealthTech.
b. Explain the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours.

Transcribed Image Text:

Activity Cost Driver Materials handling $ 1,800,00 Milling and grinding 4,400,000 Assembly and inspection Budgeted Costs for 2022 Testing 3,000,000 600,000 Cost Cost Driver Allocation Used as Rate Allocation Base Number of $3/part parts used Number 22/hour machine hours Direct labor hours worked Number of units tested 10/hour 6/unit