Customized Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2003 are as follows.

For the last 4 years, Customized Stairs Co. has been charging overhead to prod- ucts on the basis of machine hours. For the year 2003, 100,000 machine hours are budgeted. Saida Fang, owner-manager of Customized Stairs Co., recently directed his ac- countant, Maria Barrila, to implement the activity-based costing system that she has re- peatedly proposed. At Saida Fang's request, Maria and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Nick Duich, sales manager, has received an order for 280 stairs from Mall Builders, Inc., a large housing development contractor. At Nick's request, Maria prepares cost es- timates for producing components for 280 stairs so Nick can submit a contract price per stair to Mall Builders. She accumulates the following data for the production of 280 stairways.

 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?

(c) What is the manufacturing cost per stairway ) under the proposed activity-based costing? (Prepare all of the necessary) schedules.)

(d) Which of (he two costing systems is preferable in pricing decisions and why

Transcribed Image Text:

Overhead Cost Pools Amount Purchasing $ 57,000 Handling materials Production (cutting, milling, finishing) 82,000 200,000 Setting up machines 84,840 Inspecting 90,000 Inventory control (raw materials and finished goods) 126.000 Utilities Total budget overhead costs 180,000 $819,840