Question

using P4-3A Shaker Stairs Co. designs and builds factory-made premium wooden stai ABC omes. 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 2017 are as follows. Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Total budgeted overhead costs Amount $ 75,000 82,000 210,000 105,000 90,000 126,000 180,000 $868,000 For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 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 pro- posed. 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 Expected Use of Activity Cost Pools Cost Drivers Cost Drivers Number of orders Number of moves Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials 600 8,000 100,000 1,250 6,000 Direct labor hours Number of setups Number of inspections and finished goods) Utilities Number of components Square feet occupied 168,000 90,000

Answer 1

Solution to d

Activity based costing method is preferable for pricing decisions as it clearly identifies costs based on the resources consumed by the particular order and therefore, there is greater accuracy in allocation of costs.

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