Exercise 2: (Ch7 ABC) Bella Clear Windows designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order. Its budgeted manufacturing overhead costs for the year 2014 are as follows: Overhead Cost Pools Purchasing $ 26,000 Amount 176,000 Production (cutting, milling, finishing) Setting up machines Inspecting 35,000 Utilities 75.000 65,000 Total budget overhead costs $377,000 For the last three years, the company has been allocating overhead to products on the basis of machine hours. For the year 2014, 20,000 machine hours are budgeted. The operations manager of Bella Clear recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. The accountant and production foreman identified the following cost drivers and their usage for the previously budgeted overhead cost pools: Drivers Overhead Cost Pools Total Activity Purchasing Number of orders Production (cutting, milling, finishing) hours 16,000 Activity Cost 80 Direct labor 250 1,250 Setting up machines Number of setups Inspecting Utilities Number of inspections Square feet occupied 15,000 During this month, the company received an order for 80 windows from a housing development contractor. The accountant prepared cost estimates for producing components for 80 windows to submit a contract price per window set to the contractor. The following data for the production of 80 windows is accumulated: Direct materials $22,000 Direct labor $23,100 Machine hours 1,600 Direct labor hours Number of purchase orders Number of machine setups 2,100 8 15 Number of inspections 12 Number of square feet occupied 1,200 Required: (a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (b) Compute the manufacturing cost per window under traditional costing. (c) Compute the manufacturing cost per window under the proposed activity-based costing system