White Company produces exercise equipment. One of its plants produces two versions of an exercise bike: an economy model and a custom model. The custom model has a sturdier frame; a plushier seat; and a variety of electronic gadgets to help the exerciser monitor heart¬

beat, calories, 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 (by process):

Facility-level costs are allocated in proportion to machine hours (provided a measure-oftime facility is used by each product).
Required:
1. Calculate the cost per unit for each product using direct labor hours to assign all over¬
head costs.
2. Form homogeneous cost pools and calculate pool rates. Explain why you group activ¬
ities in the pools that are formed.
3. Using the pool rates computed in Requirement 2, calculate the cost per unit for each product. Compare these costs with those calculated using the functional-based method.
Which cost is the most accurate? Explain.

Transcribed Image Text:

Economy Model Custom Model Expected quantity Selling price Prime costs Machine hours 20,000 $90 10,000 $180 $40 $80 5,000 5,000 Direct labor hours 10,000 10,000 Engineering support (hours) 1,500 4,500 Receiving (orders processed) 250 500 Materials handling (number of moves) 2,000 4,000 Purchasing (number of requisitions) 100 200 Maintenance (hours used) 1,000 3,000 Paying suppliers (invoices processed) 250 500 Setting up batches (number of setups) 20 60