Shaker Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2017 are as follows.

For the last 4 years, Shaker Stain Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 100,000 machine hours are budgeted.
Jeremy Nolan, owner-manager of Shaker Stairs Co., recently directed his accountant, Bill Seagren, to implement the activity-based costing system that he has repeatedly pro-posed. At Jeremy Nolan's request, Bill and the production foreman identify the following cost driven and their usage for the previously budgeted overhead cost pools.

Steve Hannon, sales manager, has received an order for 250 stairways from Commu-nity Builders, Inc., a large housing development contractor. At Steve's request, Bill pre-pares cost estimates for producing components for 250 stairways so Steve can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 250 stairways.
Direct materials .............................. $103,600
Direct labor ................................... $112,000
Machine hours ............................... 14,500
Direct labor hours ........................... 5,000
Number of purchase orders ................ 60
Number of material moves ................. 800
Number of machine setups ................. 100
Number of inspections ...................... 450
Number of components ..................... 16,000
Number of square feet occupied ........... 8,000
Instructions
(a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
(b) What is the manufacturing cost per stairway under traditional costing? (Round to the nearest cent.)
(c) What is the manufacturing cost per stairway under the proposed activity-based costing? (Round to the nearest cent. Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions and why?

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Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Amount 75,000 82,000 210,000 105,000 90,000 126,000 180,000 $868,000 Total budgeted overhead costs Expected Use of Cost Drivers Activity Cost Pools Cost Drivers Number of orders Number of moves Handling materials Production (cutting, milling, finishing Setting up machines 600 8,000 100,000 1,250 6,000 Direct labor hours Number of setups Number of inspections Inventory control (raw materials and finished goods) Utilities Number of Square feet occupied 168,000 90,000 components