P$4\mathrm{.}3($LO $1,2),$ AN Writing 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 $2022$ are as follows.

For the last $4$ years, Shaker Stairs Co$.$ has been charging overhead to products on the

basis of machine hours. For the year $2022,100,000$ 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

Purchasing

Handling materials

Production $($cutting$,$ milling, finishing$)$

Setting up machines

Inspecting

Inventory control $($raw materials and

finished goods$)$

Utilities

Cost Drivers

Number of orders

Number of moves

Direct labor hours

Number of setups

Number of

inspections

Number of

components

Square feet

occupied

Estimated Use of Cost

Drivers

$600$

$8,000$

$100,000$

$1,250$

$6,000$

$168,000$

$90,000$

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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.

Number of square feet occupied $8,000$

Instructions

Compute the predetermined overhead rate using traditional costing with

machine hours as the basis.

What is the manufacturing cost per stairway under traditional costing? $($Round to

the nearest cent.$)$

b$.$ Cost$/$stairway $$1,365\mathrm{.}84$

What is the manufacturing cost per stairway under the proposed activity$-$based

costing? $($Round to the nearest cent. Prepare all of the necessary schedules.$)$

c$.$ Cost$/$stairway $$1,139\mathrm{.}80$

Which of the two costing systems is preferable in pricing decisions and why?