| | Stellar Stairs Co. designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are made of white oak wood. The companys budgeted manufacturing overhead costs for 2016 are as follows: | Overhead Cost Pools | | Amount | | | Purchasing | | $69,000 | | | Handling materials | | 82,000 | | | Production (cutting, milling, finishing) | | 210,000 | | | Setting up machines | | 95,000 | | | Inspecting | | 90,000 | | | Inventory control (raw materials and finished goods) | | 126,000 | | | Utilities | | 180,000 | | | Total budget overhead costs | | $852,000 | | For the last four years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For 2016, it has budgeted 100,000 machine hours. Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Kiko Nishikawa, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujars request, Kiko and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools. | Activity Cost Pools | | Cost Drivers | | Expected Use of Cost Drivers | | | Purchasing | | Number of orders | | | 770 | | | | Handling materials | | Number of moves | | | 8,600 | | | | Production | | | | | | | | | (cutting, milling, finishing) | | Direct labour hours | | | 109,350 | | | | Setting up machines | | Number of set-ups | | | 1,590 | | | | Inspecting | | Number of inspections | | | 6,580 | | | | Inventory control | | | | | | | | | (raw materials and finished goods) | | Number of components | | | 169,000 | | | | Utilities | | Square metres occupied | | | 9,010 | | | Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jasons request, Kiko prepares cost estimates for producing components for 280 stairways so Jason can submit a contract price per stair to Community Builders. She accumulates the following data for the production of 280 stairways: | Direct materials | | $103,600 | | | Direct labour | | 112,000 | | | Machine hours | | 14,500 | | | Direct labour hours | | 5,000 | | | Number of purchase orders | | 60 | | | Number of material moves | | 800 | | | Number of machine set-ups | | 100 | | | Number of inspections | | 450 | | | Number of components | | 16,000 | | | Number of square metres occupied | | 800 | | | |
