Shaker Stairs Co. 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 2020 are as
follows.
Overhead Cost Pools |
Amount |
|
Purchasing |
$75,000 |
|
Handling materials |
82,000 |
|
Production (cutting, milling, finishing) |
220,000 |
|
Setting up machines |
105,000 |
|
Inspecting |
114,000 |
|
Inventory control (raw materials and finished goods) |
126,000 |
|
Utilities |
360,000 |
|
Total budgeted overhead costs |
$1,082,000 |
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 |
Cost Drivers |
Estimated Use of |
||
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 |
Steve Hannon, sales manager, has received an order for 250
stairways from Community Builders, Inc., a large housing
development contractor. At Steve’s request, Bill prepares cost
estimates for producing components for 250 stairways so Steve can
submit a contract price per stairway to Community Builders. He
accumulates the following data for the production of 250
stairways.
Direct materials | $104,000 | |
Direct labor | $112,600 | |
Machine hours | 15,000 | |
Direct labor hours | 5,400 | |
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 |
What is the manufacturing cost per stairway under traditional
costing? (Round answer to 2 decimal places, e.g.
12.25.)
Cost per stairway |
Solution:
Cost per stairway = $1,515.60
Explanation:
First we, calculate allocated overhead for 250 stairways:
Calculation of predetermined overhead rate:
Predetermined overhead rate = Total manufacturing overhead / Total machine hours
Predetermined overhead rate = $1,082,000 / 100,000 hours
= $10.82
Allocated Overhead for 250 Stairways
Total machine hours | 15,000 hrs. |
Predetermined overhead rate | $10.82 |
Allocated overhead for 250 stairways (15,000 × $10.82) | $162,300 |
Calculation for The manufacturing cost per stairway under traditional costing:
Direct materials | $104,000 |
Direct labor | $112,600 |
Allocated Overhead | $162,300 |
Product cost | $378,900 |
Number of stairways | 250 |
Cost per stairway ($378,900/250) | $1515.60 |
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Shaker Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components...
Shaker Stairs Co. 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 2020 are as follows. Amount Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities $75,000 82,000 210,000 100,000 96,000 126,000 270,000 Total budgeted overhead...
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