P4-3A Stellar Stairs Co. of Poway designs and builds

Price: $3.99


P4-3A 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 2006 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 2006, 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.

so on ....

Instructions
(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?
(Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions and
why?