Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stair

Question

Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2009 are as follows.
Overhead Cost Pools Amount

Purchasing $ 57,000
Handling materials 82,000
Production (cutting, milling, finishing) 210,000
Setting up machines 85,000
Inspecting 90,000
Inventory control (raw materials and finished goods) 126,000
Utilities 180,000

Total budget overhead costs $830,000



For the last 4 years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2009, 100,000 machine hours are budgeted.
Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Lindsay Baker, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujar's request, Lindsay and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Activity Cost Pools Cost Drivers
Expected
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


Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jason's request, Lindsay prepares cost estimates for producing components for 280 stairs 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 $103,600
Direct labor $112,000
Machine hours 14,500
Direct labor hours 5,000
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






Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 2 decimal places, e.g. 10.50.)
$ per machine hour.





What is the manufacturing cost per stairway under traditional costing? (Round answer to 2 decimal places, e.g. 10.50. Use the rounded amount from the previous question when calculating the answer for this question.)
Cost per stair $





What is the manufacturing cost per stairway under the proposed activity-based costing? (Prepare all of the necessary schedules. Round your computations for activity-based overhead rates and final answer to 2 decimal places, e.g. 10.50.)
Cost per stair $

Explanation / Answer

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