Question

Please show working and answer in order

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 exerdser monitor heartbeat, calories burned, distance traveled, etc. At the beginning of the year, the following data were prepared for this plant Standard Model 30,000 $370 Deluxe Model 15,000 $700 Expected quantity Selling price Prime costs Machine hours Direct labor hours Engineering support (hours) Receiving (orders processed) Materials handling (number of moves) Purchasing (number of requisitions) Maintenance (hours used) $4.5 million $5.25 million 37,500 75,000 13,500 3,000 15,000 750 6,000 3,750 60 37,500 75,000 31,500 4,500 45,000 1,500 24,000 3,750 540 Paying suppliers (invoices processed) Setting up batches (number of setups) Additionally, the following overhead activity costs are reported Check My Work 3 more Check My Work uses remaining Next 2:06 AM ENG 29/01/21

Answer 1

Solution 1:

Overhead rate using Direct Labor Hours = total Overhead cost / total direct labor hours

= $4,500,000 / (75,000+75,000) = $4,500,000 / 150,000 = $30 per labor hour

Computation of unit cost of each product - Fisico Company (Using Direct labor hours to assign overhead costs)
Particulars	Standard Model	Deluxe Model
Prime Costs	$45,00,000	$52,50,000
Manufacturing overhead (Overhead rate* Direct labor hours)	$22,50,000	$22,50,000
Total Cost	$67,50,000	$75,00,000
Expected units	30000	15000
Cost per unit	$225	$500

Solution 2:

Computation of activity rate for each activity
Activity	Estimated Overhead Cost	Total Expected use of cost drivers		Activity Rates
					Maintenace	$6,00,000.00	30000	Hours used	$20.00
Engineering support	$9,00,000.00	45000	Hours	$20.00
Materials handling	$12,00,000.00	60000	moves	$20.00
Setups	$7,50,000.00	600	setups	$1,250.00
Purchasing	$4,50,000.00	2250	requisitions	$200.00
Receiving	$3,00,000.00	7500	orders	$40.00
Paying Suppliers	$3,00,000.00	7500	invoices	$40.00
Total	$45,00,000.00

Allocation of overhead and computation of overhead cost per unit
Activity	Standard Model			Deluxe Model
	Expected use of Drivers	Overehad rates	Cost Assigned	Expected use of Drivers	Overehad rates	Cost Assigned
Maintenace	6000	$20.00	$1,20,000	24000	$20.00	$4,80,000
Engineering support	13500	$20.00	$2,70,000	31500	$20.00	$6,30,000
Materials handling	15000	$20.00	$3,00,000	45000	$20.00	$9,00,000
Setups	60	$1,250.00	$75,000	540	$1,250.00	$6,75,000
Purchasing	750	$200.00	$1,50,000	1500	$200.00	$3,00,000
Receiving	3000	$40.00	$1,20,000	4500	$40.00	$1,80,000
Paying Suppliers	3750	$40.00	$1,50,000	3750	$40.00	$1,50,000
Total			$11,85,000			$33,15,000
Nos of units			30000			15000
Overhead cost per unit			$39.50			$221.00

Computation of unit cost of each product - Activity Based costing
Particulars	Standard Model	Deluxe Model
Prime Costs	$45,00,000	$52,50,000
Manufacturing overhead	$11,85,000	$33,15,000
Total Cost	$56,85,000	$85,65,000
Expected units	30000	15000
Unit Product Cost	$189.50	$571.00

On comparing these costs with those calculated using the unit based method, Activity based costs are most accurate.