Fisico Company produces exercise bikes. One of its plants produces two versions: a standard model and a deluxe model. The deluxe model has a wider and sturdier base and a variety of electronic gadgets to help the exerciser monitor heartbeat, calories burned, distance traveled, etc. At the beginning of the year, the following data were prepared for this plant:
Standard Model Deluxe Model
Expected quantity 30,000 15,000
Selling price $370 $700
Prime costs $4.5 million $5.25 million
Machine hours 37,500 37,500
Direct labor hours 75,000 75,000
Engineering support (hours) 13,500 31,500
Receiving (orders processed) 3,000 4,500
Standard Model Deluxe Model
Materials handling (number of moves) 15,000 45,000
Purchasing (number of requisitions) 750 1,500
Maintenance (hours used) 6,000 24,000
Paying suppliers (invoices processed) 3,750 3,750
Setting up batches (number of setups) 60 540
Additionally, the following overhead activity costs are reported:
Maintenance $600,000
Engineering support 900,000
Materials handling 1,200,000
Setups 750,000
Purchasing 450,000
Receiving 300,000
Paying suppliers 300,000
Total $4,500,000
1. Calculate the cost per unit for each product using direct labor hours to assign all overhead costs.
2. Calculate activity rates for the following:
a. Maintenance $ per hour used
b. Engineering support $ per hour used
c. Materials handling $ per move
d. Setups $ per setup
e. Purchasing $ per requisition
f. Receiving $ per orderg.
g. Paying suppliers $ per invoice
3. Determine the overhead cost per unit. What are the total costs per unit?
4. Compare these costs with those calculated using the unit-based method. Which cost is the most accurate?