Activity-based costing versus traditional costing. Tree Corporation manufactures plywood and trim. Overhead costs are currently...
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Activity-based costing versus traditional costing. Tree Corporation manufactures plywood and trim. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended using an activity-based costing system using the following data:
| Activity | Cost Driver | Cost | Plywood | Trim |
| Production Setup | Number of Setups | $ 60,000 | 15 | 10 |
| Material Handling | Number of Parts | $ 25,000 | 25 | 15 |
| Packaging/Shipping | Number of Units Shipped | $ 30,000 | 40,000 | 60,000 |
|
| Total | $ 115,000 |
|
|
a. Compute the amount of overhead allocated to each of the products (Plywood and Trim) under activity-based costing.
b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume labor-hours required to assemble each unit is .5 for Plywood and 1.0 for Trim, and 60,000 units of Plywood and 90,000 units of Trim, were produced.
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