Bienstar Company produces treadmills. 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:

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 functional-based method. Which cost is the most accurate? Explain.

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Expected quantity Selling price Prime costs Machine hours Standard Model 20,000 $280 Deluxe Mode 10,000 $575 $3 million $3.5 million 25,000 25,000 Direct labor hours 50,000 50,000 Engineering support (hours) 9,000 21,000 Receiving (orders processed) 2,000 3,000 Materials handling (number of moves) 10,000 30,000 Purchasing (number of requisitions) 500 1,000 Maintenance (hours used) 4,000 16,000 Paying suppliers (invoices processed) 2,500 2,500 Setting up batches (number of setups) 40 360 Additionally, the following overhead activity costs are reported: Maintenance $ 400,000 Engineering support 600,000 Materials handling 800,000 Setups 500,000 Purchasing 300,000 Receiving 200,000 Paying suppliers 200,000 $3,000,000