Sandhill 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 companys budgeted manufacturing overhead costs for 2022 are as follows:

For the past four years, Sandhill has been charging overhead to products on the basis of machine hours. For 2022, it has budgeted 100,000 machine hours. Anthony Walker, owner-manager of Sandhill, recently directed her accountant, Michelle Hall, to implement the activity-based costing system that she has repeatedly proposed. At Anthonys request, Michelle and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Jason Dion, sales manager, has received an order for 280 stairways from Clinton Builders Inc., a large housing development contractor. At Jasons request, Michelle prepares cost estimates for producing components for 280 stairways so Jason can submit a contract price per staircase to Clinton Builders. She accumulates the following data for the production of 280 stairways:

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.)

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.)

d) Which of the two costing systems is preferable in pricing decisions and why?

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 $69.000 80,000 200.000 95,000 91.000 129,000 180,000 $844,000 Cost Drivers Number of orders Number of moves Estimated Use of Cost Drivers 600 8,000 100,000 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 1.250 7,000 Number of components 172,000 Square metres occupied 9.000 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