P17.3A Writing Assign overhead costs using traditional costing and ABC, compare results. (LO 1, 2), AN 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 2022 are as follows. Overhead Cost Pools Amount $ 75,000 Purchasing Handling materials Production (cutting, milling, finishing) 82,000 210,000 105,000 Setting up machines Inspecting Inventory control (raw materials and finished goods) 90,000 126,000 180,000 Utilities Total budgeted overhead costs $868,000 For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2022, 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 proposed. At Jeremy Nolan's request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Estimated Use of Activity Cost Pools Cost Drivers Cost Drivers Activity cost pools Cast Prices Cost Drivers Purchasing Number of orders 600 Estimated Use of Activity Cost Pools Cost Drivers Cost Drivers 600 8,000 100,000 Purchasing Number of orders Handling materials Number of moves Production (cutting, milling, finishing) Direct labor hours Setting up machines Number of setups Inspecting Number of inspections Inventory control (raw materials and finished goods) Number of components Utilities Square feet occupied 1,250 6,000 168,000 90,000 Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor. At Steve's request, Bill prepares 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 5,000 Direct labor hours Number of purchase orders 60 Number of material moves 800 Number of machine setups 100 Number of inspections 450 Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor. At Steve's request, Bill prepares 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 Direct labor Machine hours $103,600 $112,000 14,500 5,000 60 Direct labor hours Number of purchase orders Number of material moves Number of machine setups 100 Number of inspections Number of components Number of square feet occupied 450 16,000 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.) Cost/stairway $1,365.84 (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.) Cost/stairway $1,139.80 (d) Which of the two costing systems is preferable in pricing decisions and why
