Compute the predetermined overhead rate using traditional

Question

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?