Question 2 Stellar 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 made of white oak wood. The company's budgeted manufacturing overhead costs for 2020 are as follows: Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Total budget overhead costs Amount $68,000 81,000 204,000 95,000 96,000 126,000 180,000 $850,000 For the past four years, Stellar Stairs has been charging overhead to products on the basis of machine hours. For 2020, it has budgeted 100,000 machine hours. Heather Fujar, owner-manager of Stellar Stairs, recently directed her accountant, Kiko Nishikawa, to implement the activity-based costing system that she has repeatedly proposed. At Heather's request, Kiko and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools. For the past four years, Stellar Stairs has been charging overhead to products on the basis of machine hours. For 2020, it has budgeted 100,000 machine hours. Heather Fujar, owner-manager of Stellar Stairs, recently directed her accountant, Kiko Nishikawa, to implement the activity-based costing system that she has repeatedly proposed. At Heather's request, Kiko and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Cost Drivers Number of orders Number of moves Estimated Use of Cost Drivers 800 9,000 Activity Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Direct labour hours Number of set-ups Number of inspections 102,000 1,250 6,000 Number of components 168,000 Square metres occupied 10,000 Jason Dion, sales manager, has received an order for 280 stairways from Community Builders Inc., a large housing development contractor. At Jason's 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 Direct labour Machine hours 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 $103,600 112,000 14,500 5,000 60 800 100 450 16,000 800 (a) * Your answer is incorrect. Try again. Calculate the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 2 decimal places, e.g. 15.25.) Predetermined overhead rate per machine hour
