Skaros Stairs Co. of Moore designs

Skaros Stairs Co. of Moore 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. Budgeted manufacturing overhead costs for the year 2011 are as follows.

Overhead Cost Pools

Amount

Purchasing $57,000

Handling materials 87,200 82,000

Production (cutting, milling, finishing) 230,000 210,000

Setting up machines 91,250  85,000

Inspecting 108,000 90,000

Inventory control (raw materials and finished goods) 134,400   126,000

Utilities 360,000   180,000

Total budget overhead costs $1,067,850  830,000

 

For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2011, 100,000 machine hours are budgeted.

Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse’s request, Neal and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead 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

David Dion, 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 $104,300    103,600

Direct labo          r $112,200    112,000

Machine hours 15,400          14,500

Direct labor hours 5,600        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. 2.25.)

$ Per machine hour.

What is the manufacturing cost per stairway under traditional costing? (Use rounded amount from part (a). Round answer to 2 decimal places, e.g. 10.50.)

What is the manufacturing cost per stairway under the proposed activity-based costing? (Round activity-based overhead rates to 2 decimal places, e.g. 10.50. Round final answer to 2 decimal places, 10.50.)