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 travelled, etc. At the beginning of the year, the following data were prepared for this plant:

Standard Model Deluxe Model

Expected quantity 30,000 15,000

Selling Price $ 370 $ 700

Prime costs $ 4.5 million $ 5.25 million

Machine Hours 37,500 37,500

Direct labour hours 75,000 75,000

Engineering support (hours) 13,500 31,500

Receiving (orders processed) 3,000 4,500

Materials handling (number of moves) 15,000 45,000

Purchasing (number of requisitions) 750 1,500

Maintenance (hours used) 6,000 24,000

Paying suppliers (invoices processed) 3,750 3,750

Setting up batches (number of setups) 60 540

Additionally, the following overhead activity costs are reported:

Maintenance $ 600,000

Engineering support 900,000

Materials handling 1,200,000

Setups 750,000

Purchasing 450,000

Receiving 300,000

Paying suppliers 300,000

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Required:

a. Calculate the cost per unit for each product using direct labour hours to assign all overhead

costs.

b. 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.

$ 4,500,000