Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 31

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:

Maintenance Engineering support Materials handling Setups Purchasing Receiving Paying suppliers
Required:
1. Calculate the cost per unit for each product using direct labor hours to assign all overhead costs.
2. Calculate activity rates and determine the overhead cost per unit. Compare these costs with those calculated using the unit-based method. Which cost is the most accurate? Explain.