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 80,000 goods) Utilities Total budget overhead costs 100,000 $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 Estimated Use of Cost Drivers Cost Drivers Number of orders 500 Handling materials Number of moves 5,000 Production (cutting, milling, finishing) Direct labour hours 65,000 Setting up machines Number of set-ups 1,000 Inspecting Number of 4,000 inspections Inventory control (raw materials and finished Number of 40,000 goods) components Utilities Square metres 5,000 occupied 7:20 PM Tue Jan 31 < = Purchasing Number of orders Q 500 5,000 36 % I A Handling materials Number of moves Production (cutting, milling, finishing) Direct labour hours 65,000 Setting up machines Number of set-ups 1,000 Inspecting Number of 4,000 inspections Inventory control (raw materials and finished Number of goods) Utilities components Square metres occupied 40,000 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 Direct labour hours Number of purchase orders Number of material moves Number of machine set-ups Number of inspections Number of components Number of square metres occupied $5,200 $3.500 200 3 32 4 20 640 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. Assign overhead costs using traditional costing and ABC; compare results.