Columbia Corporation Manufactures Two Products: Tricycles and Wagons

Essay

Columbia Corporation manufactures two products: Tricycles and Wagons. The annual production and sales of Tricycles is 2,200 units, while 1,750 units of Wagons are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Tricycles require 2 direct labor hours per unit, while Wagons require 1.5 direct labor hours per unit. The total estimated overhead for the period is $385,125. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: Required:
a. Calculate the unit cost for a Wagon using the traditional system based on a single plantwide overhead rate (use direct labor hours as the cost driver).
b. Calculate the unit cost for a Wagon using the activity-based costing system.