Heese Corporation Manufactures Two Products-Tricycles and Wagons

Essay

Heese Corporation manufactures two products-Tricycles and Wagons. The annual production and sales of Tricycles is 2,000 units, while 1,500 units of Wagons are produced and sold. The company has traditionally used direct labour hours to allocate its overhead to products. Tricycles require 1.5 direct labour hours per unit, while Wagons require 1.0 direct labour hours per unit. The total estimated overhead for the period is $215,000. 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 overhead per unit for a Wagon using the traditional system based on a single-wide overhead rate (use direct labour hours as the cost driver).
B. Calculate the overhead per unit for a Wagon using the activity-based costing system.