Acc349 Managerial Accounting: P4-3A Stellar Stairs Co. of Poway Designs and builds factory-made

Acc349 Managerial Accounting

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 2009:

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



Activity 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

Production data for 280 stairways:

Direct materials 103,600

Direct labor 112,000

Machine hours 14,500

Direct labor hours 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

Instructions:

a. Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 2 decimal places, e.g. 10.50.)

b. What is the manufacturing cost per stairway under traditional costing? (Round answer to 2 decimal places, e.g. 10.50. Use the rounded amount from the previous question when calculating the answer for this question.)

c. What is the manufacturing cost per stairway under the proposed activity-based costing? (Prepare all of the necessary schedules. Round your computations for activity-based overhead rates and final answer to 2 decimal places, e.g. 10.50.)

d. Which of the two costing systems is prefereable in pricing decisions and why?
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