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)   210,000 Setting up machines   100,000 Inspecting   96,000 Inventory control (raw materials and finished goods)   126,000 Utilities   450,000 Total budgeted overhead costs   $1,139,000 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 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 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   $103,900 Direct labor   $113,000 Machine hours   15,000 Direct labor hours   5,500 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 Calculate total overhead assigned under ABC. Total overhead assigned   $Type your answer here  What is the manufacturing cost per stairway under the proposed activity based costing?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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)  
210,000
Setting up machines  
100,000
Inspecting  
96,000
Inventory control (raw materials and finished goods)  
126,000
Utilities  
450,000
Total budgeted overhead costs  
$1,139,000


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
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


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   $103,900
Direct labor   $113,000
Machine hours   15,000
Direct labor hours   5,500
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

Calculate total overhead assigned under ABC.

Total overhead assigned  
$Type your answer here 

What is the manufacturing cost per stairway under the proposed activity based costing?

 

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