P$4\mathrm{.}3$A $($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 $2020$ are as follows.

Assign overhead costs using traditional costing and ABC; compare results.

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

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$)$

Cost Drivers

Number of orders

Number of moves

Direct labor hours

Estimated Use of

Cost Drivers

$8,000$

$100,000$

$2020$ are as follows.

Assign overhead costs using traditional costing and ABC, compare results.

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

data for the production of $250$ stairways

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$)$

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

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.$)$

Cost$/$stainway $$1,13980$

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