Skaros Stairs Co. of Moore 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 2011 are as follows.
Overhead Cost Pools Amount
| Overhead cost pools | Amounts |
| Purchasing | 57,000 |
| Handing materials | 82,000 |
| Production (cutting, milling, finishing) | 210,000 |
| Setting upt machines | 85,000 |
| Inspecting | 90,000 |
| Inventory control (raw materials and finished goods) | 126,000 |
| Utilities | 180,000 |
| Total budget overhead costs | 830,000 |
| Activity cost pools | Cost Drivers | Expected Use of Cost Drivers |
| Purchasing | Number of orders | 600 |
| Handing materials | Number of moves | 8,000 |
| Production (Cutting, milling, finishing) | Direct labor hours | 100,000 |
| Setting up machines | Number of setupt | 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 |
David Hannon, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At David’s request, Neal prepares cost estimates for producing components for 280 stairs so David can submit a contract price per stair to Community Builders. He accumulates the following data for the production of 280 stairways.
| Direct materials | 103,600 |
| Direct labor | 112,000 |
| Machine hours | 14,500 |
| 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 |
Requirement:
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?
c. What is the manufacturing cost per stairway under the proposed activity-based costing?
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