Unit-Based Versus Activity-Based Costing Fisico Company produces exercise bikes.
ID: 2422399 • Letter: U
Question
Unit-Based Versus Activity-Based Costing
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:
Additionally, the following overhead activity costs are reported:
Required:
1. Calculate the cost per unit for each product using direct labor hours to assign all overhead costs.
2. Calculate activity rates.
Determine the overhead cost per unit. What are the total costs per unit? If required, round your final answer to the nearest cent.
Compare these costs with those calculated using the unit-based method. Which cost is the most accurate?
Unit cost Standard $ Deluxe $Explanation / Answer
1
Calculation of cost per unit for each product using direct labor hours to assign all overhead costs:
Total factory Overhead Costs
$ 4,500,000
Total Direct labor Hours (75000+75000)
150,000
Overhead rate per labor hour = 4500000 / 150000
$ 30
Standard Model
Deluxe Model
Total Prime Cost
$ 4,500,000
$ 5,250,000
Add: Overhead Costs
$ 2,250,000
$ 2,250,000
(75000*30)
(75000*30)
Total Costs (A)
$ 6,750,000
$ 7,500,000
Total Number of units produced (B)
30,000
15,000
Unit Cost = A/B
$ 225
$ 500
2
Calculation of Activity Rates :
Cost Pool
Total Overhead
Activity
Activity Rate
Standard Model
Deluxe Model
Total
A
B
A/B
Maintenance
$ 600,000
6,000
24,000
30,000
$ 20
per hour used
Engineering support
$ 900,000
13,500
31,500
45,000
$ 20
per hour
Materials handling
$ 1,200,000
15,000
45,000
60,000
$ 20
per move
Setups
$ 750,000
60
540
600
$ 1,250
per setup
Purchasing
$ 450,000
750
1,500
2,250
$ 200
per requisition
Receiving
$ 300,000
3,000
4,500
7,500
$ 40
per order
Paying suppliers
$ 300,000
3,750
3,750
7,500
$ 40
per invoice
$ 4,500,000
3
Calculation of overhead cost per unit:
For Standard Model:
Cost Pool
Activity
Rate
Amount
A
B
A*B
Maintenance
6,000
$ 20
$ 120,000
Engineering support
13,500
$ 20
$ 270,000
Materials handling
15,000
$ 20
$ 300,000
Setups
60
$ 1,250
$ 75,000
Purchasing
750
$ 200
$ 150,000
Receiving
3,000
$ 40
$ 120,000
Paying suppliers
3,750
$ 40
$ 150,000
Total Overhead Allocated
$ 1,185,000
For Deluxe Model:
Cost Pool
Activity
Rate
Amount
A
B
A*B
Maintenance
24,000
$ 20
$ 480,000
Engineering support
31,500
$ 20
$ 630,000
Materials handling
45,000
$ 20
$ 900,000
Setups
540
$ 1,250
$ 675,000
Purchasing
1,500
$ 200
$ 300,000
Receiving
4,500
$ 40
$ 180,000
Paying suppliers
3,750
$ 40
$ 150,000
Total Overhead Allocated
$ 3,315,000
4
Calculation of Unit Cost;
Standard Model
Deluxe Model
Total Prime Cost
$ 4,500,000
$ 5,250,000
Add: Overhead Costs
$ 1,185,000
$ 3,315,000
Total Costs (A)
$ 5,685,000
$ 8,565,000
Total Number of units produced (B)
30,000
15,000
Unit Cost = A/B
$ 190
$ 571
1
Calculation of cost per unit for each product using direct labor hours to assign all overhead costs:
Total factory Overhead Costs
$ 4,500,000
Total Direct labor Hours (75000+75000)
150,000
Overhead rate per labor hour = 4500000 / 150000
$ 30
Standard Model
Deluxe Model
Total Prime Cost
$ 4,500,000
$ 5,250,000
Add: Overhead Costs
$ 2,250,000
$ 2,250,000
(75000*30)
(75000*30)
Total Costs (A)
$ 6,750,000
$ 7,500,000
Total Number of units produced (B)
30,000
15,000
Unit Cost = A/B
$ 225
$ 500
2
Calculation of Activity Rates :
Cost Pool
Total Overhead
Activity
Activity Rate
Standard Model
Deluxe Model
Total
A
B
A/B
Maintenance
$ 600,000
6,000
24,000
30,000
$ 20
per hour used
Engineering support
$ 900,000
13,500
31,500
45,000
$ 20
per hour
Materials handling
$ 1,200,000
15,000
45,000
60,000
$ 20
per move
Setups
$ 750,000
60
540
600
$ 1,250
per setup
Purchasing
$ 450,000
750
1,500
2,250
$ 200
per requisition
Receiving
$ 300,000
3,000
4,500
7,500
$ 40
per order
Paying suppliers
$ 300,000
3,750
3,750
7,500
$ 40
per invoice
$ 4,500,000
3
Calculation of overhead cost per unit:
For Standard Model:
Cost Pool
Activity
Rate
Amount
A
B
A*B
Maintenance
6,000
$ 20
$ 120,000
Engineering support
13,500
$ 20
$ 270,000
Materials handling
15,000
$ 20
$ 300,000
Setups
60
$ 1,250
$ 75,000
Purchasing
750
$ 200
$ 150,000
Receiving
3,000
$ 40
$ 120,000
Paying suppliers
3,750
$ 40
$ 150,000
Total Overhead Allocated
$ 1,185,000
For Deluxe Model:
Cost Pool
Activity
Rate
Amount
A
B
A*B
Maintenance
24,000
$ 20
$ 480,000
Engineering support
31,500
$ 20
$ 630,000
Materials handling
45,000
$ 20
$ 900,000
Setups
540
$ 1,250
$ 675,000
Purchasing
1,500
$ 200
$ 300,000
Receiving
4,500
$ 40
$ 180,000
Paying suppliers
3,750
$ 40
$ 150,000
Total Overhead Allocated
$ 3,315,000
4
Calculation of Unit Cost;
Standard Model
Deluxe Model
Total Prime Cost
$ 4,500,000
$ 5,250,000
Add: Overhead Costs
$ 1,185,000
$ 3,315,000
Total Costs (A)
$ 5,685,000
$ 8,565,000
Total Number of units produced (B)
30,000
15,000
Unit Cost = A/B
$ 190
$ 571
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