Shaker 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 of white oak wood. Budgeted manufacturing overhead costs for the year 2020 are as follows. | Overhead Cost Pools | | Amount | | Purchasing | | $75,000 | | Handling materials | | 82,000 | | Production (cutting, milling, finishing) | | 220,000 | | Setting up machines | | 100,000 | | Inspecting | | 108,000 | | Inventory control (raw materials and finished goods) | | 126,000 | | Utilities | | 270,000 | | Total budgeted overhead costs | | $981,000 | For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2020, 100,000 machine hours are budgeted. Jeremy Nolan, owner-manager of Shaker Stairs Co., recently directed his accountant, Bill Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Jeremy Nolans request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools. | Activity Cost Pools | | Cost Drivers | | Estimated Use of Cost Drivers | | Purchasing | | Number of orders | | 600 | | Handling materials | | Number of moves | | 8,000 | | Production (cutting, milling, finishing) | | Direct labor hours | | 100,000 | | Setting up machines | | Number of setups | | 1,250 | | Inspecting | | Number of inspections | | 6,000 | | Inventory control (raw materials and finished goods) | | Number of components | | 168,000 | | Utilities | | Square feet occupied | | 90,000 | Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor. At Steves request, Bill prepares cost estimates for producing components for 250 stairways so Steve can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 250 stairways. | Direct materials | | $103,900 | | Direct labor | | $112,500 | | Machine hours | | 15,000 | | Direct labor hours | | 5,500 | | Number of purchase orders | | 60 | | Number of material moves | | 800 | | Number of machine setups | | 100 | | Number of inspections | | 450 | | Number of components | | 16,000 | | Number of square feet occupied | | 8,000 | | | | |
