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P4-3B Luxury Furniture designs and builds factory-made, premium, wood armoires for homes. All are of white oak. Its budgeted manufacturing overhead costs for the year 2011 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 budget overhead costs Amount $ 35,000 50,000 130,000 55,000 60,000 80,000 100,000 $510,000 For the last 4 years, Luxury Furniture has been charging overhead to products on the basis of materials cost. For the year 2011, materials cost of $500,000 were budgeted. Sam Pluemer, owner-manager of Luxury Furniture, recently directed his accountant, Ben Borke, to implement the activity-based costing system that he has repeatedly pro- posed. At Sam Pluemer's request, Ben and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Overhead Cost Pools Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials and finished goods) Utilities Activity Cost Drivers Number of orders Number of moves Direct labor hours Number of setups Number of inspections Expected Use of Cost Drivers 500 5,000 65,000 1,000 4,000 Number of components Square feet occupied 40,000 50,000 Tricia Steiner, sales manager, has received an order for 10 luxury armoires from Thom's Interior Design. At Trcia's request, Ben prepares cost estimates for producing 10 armoires so Tricia can submit a contract price per armoire to Thom's. He accumulates the following data for the production of 10 armoires. $5,200 $3,500 200 Direct materials Direct labor Direct labor hours Number of purchase orders Number of material moves Number of machine setups Number of inspections Number of components Number of square feet occupied 3 32 4. 20 640 320 Instructions (a) Compute the predetermined overhead rate using traditional costing with materials cost as the basis. (b) What is the manufacturing cost per armoire under traditional costing? (c) What is the manufacturing cost per armoire under the proposed activity-based costing? (Prepare all of the necessary schedules.) (d) Which of the two costing systems is preferable in pricing decisions and why

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