Instructions:

(a) Compute the predetermined overhead rate using traditional costing with materials cost as the basis.

(b) What is the manufacturing cost per armoire under traditional costing?

(c) What is the manufacturing cost per armoire under the proposed activity-based costing?

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

lactation 1: Ch. 4 Parson Furniture designs and builds factory-made, premium, wood armoires for homes. All are of white oak Its budgeted manufacturing overhead costs for the year 201}' are as follows. Purchasing Handling materials Production Setting up machines Impacting Inventory control Utilities Total bud-et overhead costs For the last 4 years, Parson Furniture has been charging overhead to products on the basis of materials cost. For the year 2017, materials cost of $500,000 were budgeted. Sandy Parson, owner-manager of Parson Furniture, recently directed her accountant, Tim Tank, to implement the activity-based costing system that he has repeatedly proposed. At Sandy Parson's request, Tim and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Estimated Use Cost Drivers of Cost Drivers Purchasing Number of orders Handling materials Number of moves Production Direct labor hours Setting up machines Number of setups inspecting Number of inspections inventory control Number of components Utilities nuare feet occu-ied Jason Sang, sales manager, has received an order for 10 luxury armoires from Sally's Interior Design. At Jason's request, Tim prepares cost estimates for producing components for 10 armoires so Jason can submit a contract price per armoire to Sally's. He accumulates the following data for the production of 10 armo'n'es. Direct materials Direct labor Direct labor hours Number of purchase orders Number of material rmves Number of machine setups Number of inspections Number of components Number of s - uare feet occu - ed