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Activity Based Costing for DuoMed and Hammerslay Industries

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Calculate total manufacturing costs using activity-based costing approach and cost per unit.

1. DuoMed, 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 that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 354,167 units for the year:
Activity
(Cost Driver) Budgeted
Costs for 2010 Cost Driver Used
as Allocation Base Cost
Allocation Rate
Materials handling $ 5,100,000 Number of parts used $ 1.20 per part
Milling and grinding 8,300,000 Number of machine hours 13.00 per hour
Assembly and inspection 5,200,000 Direct labor hours worked 4.50 per hour
Testing 1,700,000 Number of units tested 4.80 per unit
________________________________________

The following production, costs, and activities occurred during the month of August:
Units
Produced/Tested Direct
Materials Costs Number
of Parts Used Machine
Hours Direct
Labor Hours
53,000 $3,500,000 275,000 97,000 160,000
________________________________________

Calculate the total manufacturing costs and the cost per unit produced and tested during the month of August for MedTech, Inc. (Round "Cost per unit" to 2 decimal places.)

Total manufacturing cost $ ____________
Cost per unit produced and tested $ ___________

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2. Hammerslay Industries manufactures and sells custom-made windows. 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 three manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $14 per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 54,700 units for the year, which will require 235,000 direct labor hours:
Activity
(Cost Driver) Budgeted
Costs for 2010 Cost Driver Used
as Allocation Base Cost
Allocation Rate
Materials handling $ 282,000 Number of parts used $ 0.28 per part
Cutting and lathe work 2,538,000 Number of parts used 1.35 per part
Assembly and inspection 4,230,000 Direct labor hours 18.00 per hour
________________________________________

The following production, costs, and activities occurred during the month of March:
Units
Produced Direct
Materials Costs Number
of Parts Used Direct
Labor Hours
3,050 $102,800 43,957 13,600
________________________________________

(a) Calculate the total manufacturing costs and the cost per unit of the windows produced during the month of March (using the activity-based costing approach). (Round "cost per unit produced" to 2 decimal places and the rest to the nearest dollar amount.)

Total manufacturing cost $ ______________

Cost per unit produced $ ______________

(b) Assume instead that Hammerslay Industries applies manufacturing overhead on a direct labor hours basis (rather than using the activity-based costing system previously described). Calculate the total manufacturing cost and the cost per unit of the windows produced during the month of March. (Hint: You will need to calculate the predetermined overhead application rate using the total budgeted overhead costs for 2010.) (Do not round your intermediate calculations. Round "cost per unit produced" to 2 decimal places and the rest to the nearest dollar amount).

Total manufacturing cost $ ___________

Cost per unit produced $ ___________.

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The solution discusses activity based costing for DuoMed and Hammerslay Industries.

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