Problem $13\mathrm{.}23$

LO $13-9$

Activity$-$based costing 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 $\backslash (\backslash$$ $22\backslash )$ 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:

$\backslash$begin$\{$tabular$\}\{|$l$|$r$|$l$|$c$|\}$

$\backslash$hline $\backslash$multicolumn$\{1\}\{|$c$|\}\{\backslash$begin$\{$tabular$\}\{$c$\}$

Activity $\backslash \backslash$

Cost Driver

$\backslash$end$\{$tabular$\}\}$ & $\backslash$multicolumn$\{1\}\{$c$|\}\{\backslash$begin$\{$tabular$\}\{$c$\}$

Budgeted $\backslash \backslash$

Costs for $2022$

$\backslash$end$\{$tabular$\}\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Cost Driver Used $\backslash \backslash$

as Allocation Base

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Cost $\backslash \backslash$

Allocation Rate

$\backslash$end$\{$tabular$\}\backslash \backslash$

$\backslash$hline Materials handling & $\backslash (\backslash$$ $1,800,00\backslash )$ & Number of parts used & $\backslash$$$3/$part $\backslash \backslash$

$\backslash$hline Milling and grinding & $\backslash (4,400,000\backslash )$ & Number machine hours & $\backslash (22/\backslash$mathrm$\{$hour$\}\backslash )\backslash \backslash$

$\backslash$hline Assembly and inspection & $\backslash (3,000,000\backslash )$ & Direct labor hours worked & $\backslash (10/\backslash$mathrm$\{$hour$\}\backslash )\backslash \backslash$

$\backslash$hline Testing & $600,000$ & Number of units tested & $\backslash (6/\backslash )$ unit $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

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

Page $514$

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|$c$|\}$

$\backslash$hline $\backslash$begin$\{$tabular$\}\{$c$\}$

Units $\backslash \backslash$

Produced$/$Tested

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Direct $\backslash \backslash$

Materials Costs

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Number $\backslash \backslash$

of Parts Used

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Machine $\backslash \backslash$

Hours

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Direct $\backslash \backslash$

Labor Hours

$\backslash$end$\{$tabular$\}\backslash \backslash$

$\backslash$hline $25,000$ & $\backslash (\backslash$$ $2,700,000\backslash )$ & $137,500$ & $47,500$ & $120,000\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

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. $($Note: You do not have to calculate the overhead that would be applied for the month of April using this alternative method.$)$