Stellar Stairs Co. 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 made of white oak wood. The company's budgeted manufacturing overhead costs for 2012 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 four years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For 2012, it has budgeted 100,000 machine hours.
Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Kiko Nishikawa, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujar's request, Kiko and the production foreperson identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jason's request, Kiko prepares cost estimates for producing components for 280 stairways so Jason can submit a contract price per stair to Community Builders. She accumulates the following data for the production of 280 stairways:
Direct materials ..................................$103,600
Direct labour .......................................112,000
Machine hours .......................................14,500
Direct labour hours ...................................5,000
Number of purchase orders ..............................60
Number of material moves ............................800
Number of machine set-ups ...........................100
Number of inspections................................. 450
Number of components ............................16,000
Number of square metres occupied ..................800
Instructions
(a) Calculate 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 and why?

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Expected Use of Cost Drivers Activity Cost Pools Purchasing Handling materials Production Cost Drivers Number of orders Number of moves 600 8,000 (cutting, milling, finishing) Setting up machines Inspecting Inventory control Direct labour hours Number ofst-ups Number of inspections 100,000 1,250 6,000 (raw materials and finished goods) Utilities Number of components Square metres occupied 168,000 9,000