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:

Expected activity

activity cost pool Estimated overhead costs tricycles wagons total

setup costs 58200 35 85 120

Engineering cost 10800 75 45 120

Maintenance costs 316125 4400 2625 7025

Total 385125

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.

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