Assign overhead costs using traditional costing and ABC; compare results. P5-46B (LO 1, 2) Prime Furniture designs and builds premium factory-made wood armoires for homes. All are made of white oak. Its budgeted manufacturing overhead costs for the year 2022 are as follows. Overhead Cost Pools Purchasing Amount $ 45,000 Handling materials 50,000 Production (cutting, milling, finishing) 130,000 Setting up machines 85,000 Inspecting 60,000 Inventory control (raw materials and finished goods) 80,000 Utilities 100,000 Total budget overhead costs $550,000 For the past four years, Prime Furniture has been charging overhead to products on the basis of materials cost. For the year 2022, materials costs of $500,000 were budgeted. Wei Huang, owner-manager of Prime Furniture, recently directed her accountant, Tom Turkel, to implement the activity-based costing system that he has repeatedly proposed. At Wei Huang's request, Tom and the production manager identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Overhead Cost Pools Purchasing Cost Drivers Estimated Use of Cost Drivers Number of orders 500 Handling materials Number of moves 5,000 Production (cutting, milling, finishing) Setting up machines Direct labour hours 65,000 Number of set-ups 1,000 Inspecting Number of inspections 4,000 Inventory control (raw materials and finished Number of 40,000 goods) components Utilities Square metres occupied 5,000 Maria Carvalho, sales manager, has received an order for 10 luxury armoires from Cohn's Interior Design. At Maria's request, Tom prepares cost estimates for producing components for 10 armoires so Maria can submit a contract price per armoire to Cohn's. He accumulates the following data for the production of 10 armoires. Direct materials Direct labour $5,200 $3,500 Direct labour hours 200 Number of purchase orders 3 Number of material moves 32 Number of machine set-ups 4 Number of inspections 20 Number of components 640 Number of square metres occupied 32 Instructions a. Calculate the predetermined overhead rate using traditional costing with materials cost as the basis. b. What is the manufacturing cost per armoire under traditional costing? b. Cost/armoire: $1,442 c. What is the manufacturing cost per armoire under the proposed activity-based costing? (Prepare all of the necessary schedules.) c. Cost/armoire: $1,225 d. Determine which of the two costing systems is preferable in pricing decisions and why.