Skaros Stairs Co. of Moore 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 2011 are as follows.
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
For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2011, 100,000 machine hours are budgeted.
Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse's request, Neal and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

David Hannon, sales manager, has received an order for 280 stairways from Community Builders, Inc., a large housing development contractor. At David's request, Neal prepares cost estimates for producing components for 280 stairways so David can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 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.
(b) What is the manufacturing cost per stairway under traditional costing? (Round to the nearest cent.)
(c) What is the manufacturing cost per stairway under the proposed activity-based costing? (Round to the nearest cent. Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions andwhy?

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Expected Use of Cost Drivers Activity Cost Pools Cost Drivers Purchasing Handling materials Production (cutting, milling, finishing) Setting up machines Inspecting Inventory control (raw materials Number of orders Number of moves Direct labor hours Number of setups Number of inspections 600 8,000 100,000 1,250 6,000 and finished goods) Utilities Number of components Square feet occupied 168,000 90,000