Shaker Stairs Co. designs and builds factory-made premium wooden stairways for h

Question

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 2017 are as follows Overhead Cost Pools Amount Purchasing Handling material:s Production (cutting, milling, finishing) Setting up machines Inspecting $73,800 82,240 218,000 97,500 108,000 129,360 360,000 $1,068,900 Inventory control (raw materials and finished goods) Utilities Total budgeted overhead costs For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 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 Nolan's request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools Expected Use of Cost Drivers Activity Cost Pools Cost Drivers Purchasing Handling material:s Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Number of orders Number of moves Direct labor hours Number of setups Number of inspections Number of components Square feet occupied 600 8,000 100,000 1,250 6,000 168,000 90,000 Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor At Steve's 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 $104,000 $112,400 15,100 5,700 60 800 100 450 16,000 8,000 Direct materials Direct labor Machine hours Direct labor hours Number of purchase orders Number of material moves Number of machine setups Number of inspections Number of components Number of square feet occupied

Explanation / Answer

b) Calculate manufacturing cost per stairway under traditional costing :

Cost per stairway = $1511.28

Direct material 104000 Direct labour 112400 Overhead applied (10.69*15100) 161419 Total manufacturing cost 377819 Unit 250 Manufacturing cost per stairway 1511.28

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