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Stellar Stairs Co 57000

Price: $2.50

Stellar Stairs Co. of Poway 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 of white oak
wood. Its budgeted manufacturing overhead costs for the year 2006 are as follows.

For the last 4 years, Stellar Stairs Co. has been charging overhead to products on
the basis of machine hours. For the year 2006, 100,000 machine hours are budgeted.
Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant,
Lindsay Baker, to implement the activity-based costing system that she has repeatedly
proposed. At Heather Fujar’s request, Lindsay and the production foreman identify
the following cost drivers and their usage for the previously budgeted overhead cost

Jason Dion, sales manager, has received an order for 280 stairs from Community
Builders, Inc., a large housing development contractor. At Jason’s request, Lindsay prepares
cost estimates for producing components for 280 stairs 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 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

(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?
(c) What is the manufacturing cost per stairway 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

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