SECTION $2--$ PROBLEM $(16$ Points$)$

PLEASE SHOW ALL OF YOUR WORK.

Cutting Edge 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 costs are reported:

Required:

$(6$ pts$.)1.$ Compute the amount of overhead to be allocated to each model of exercise bike $($Standard and

Deluxe$)$ using direct labor hours as the allocation base. Compute the total product cost per unit for

each model of exercise bike.

$(8$ pts$.)2.$ Compute the amount of overhead to be allocated to each model of exercise bike $($Standard and

Deluxe$)$ under activity$-$based costing $($ ABC $).$ Compute the total product cost per unit for each model

of exercise bike.

$(2$ pts$.)3.$ Assuming the ABC system is more precise, by how much would the company over or under

cost each of the two models of exercise bikes, Standard and Deluxe, if it allocates overhead using

direct labor hours? Be specific.