Q1) Luxury Furniture designs and builds factory-made, premium, wood armoires for homes. All are of white oak. Its budgeted manufacturing overhead costs for the year 2017 are as follows.

Overhead Cost Pools Amont ($)

Purchasing 47,000

Handling materials 50,000

Production (cutting, milling, finishing) 136,000

Setting up machines 85,000 Inspecting 60,000 Inventory control (RM and FG) 84,000

Utilities 100,000

For the last 4 years, Luxury Furniture has been charging overhead to products on the basis of materials cost. For the year 2017, materials cost of $570,000 were budgeted. Jim Brigham, owner-manager of Luxury Furniture, recently directed his accountant, Bob Borke, to implement the activity-based costing system that he has repeatedly proposed. At Jim Brighams request, Bob and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Overhead Cost Pools Activity Cost Drivers Expected Use of Cost Drivers

Purchasing Number of orders 500 Handling materials Number of moves 5,700 Production (cutting, milling, finishing) Direct labor hours 65,000 Setting up machines Number of setups 1,600 Inspecting Number of inspections 4,800 Inventory control (RM and FG) Number of components 40,000

Utilities Square feet occupied 54,000

Debbie Steiner, sales manager, has received an order for 16 luxury armoires from Thoms Interior Design. At Debbies request, Bob prepares cost estimates for producing 16 armoires so Debbie can submit a contract price per armoire to Thoms. He accumulates the following data for the production of 16 armoires.

DM Cost ($) 5,800 DL Cost ($) 3,400 DL Hours 200

Number of Purchase Orders 3

Number of Materials Moves 32

Number of Machine Setups 4

Number of Inspections 20

Number of Components 640

Number of Square Feet Occupied 320

a) What is the unit manufacturing cost per armoire under traditional costing? b) What is the unit manufacturing cost per armoire under the proposed activity-based costing?