Question

Problem 17-03A a-b, c-c (Part Level Submission) Shaker Stars Co, designs and builds factory made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, handrais permit installation of starways of varying lengths and widths. All are of white oak wood Budgeted manufacturing overhead costs for the year 2020 are as follows. Overhead Cost Pools Purchaung Handing materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utaties Total budgeted overhead costs Amount $75,000 82,000 220,000 100,000 108,000 126,000 270,000 $981,000 For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2020, 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. Activity Cost Pools Purchasing Handing materials Production (cutting, milling, finishing) Setting up machines Inspecting Cost Drivers Number of orders Number of moves Direct labor hours Number of setups Number of inspections Estimated Use of Cost Drivers 600 8,000 100,000 1,250 6,000 TK 000

Answer 1

Answer -

Manufacturing cost per stairway under traditional costing:

Cost per stairway = $1456.20

Calculation:

Here,

First need to compute predetermined overhead rate:

Predetermined overhead rate = Total budgeted overhead costs / Total budgeted machine hours

= $981000 / 100000 machine hours

= $9.81 per machine hour

Now,

Overhead for the production of 250 stairways:

Overhead = Actual machine hours for the production of 250 stairways * Predetermined overhead rate

= 15000 machine hours * $9.81 per machine hour

= $147150

Therefore,   

Manufacturing cost for the production of 250 stairways under traditional costing:

= Direct materials + Direct labor + Overhead

= $103800 + $113100 + $147150

= $364050

So,

Manufacturing cost per stairway under traditional costing:

Cost per stairway = Manufacturing cost for 250 stairways / No. of stairways

Cost per stairway = $364050 / 250 stairways

Cost per stairway = $1456.20