Business 251-Luxury Furniture Designs And Builds Factory-Made,

Luxury Furniture designs and builds factory-made, premium, wood armoires for homes. All are of white oak. Its budgeted manufacturing overhead costs for the year 2017 are as follows. Overhead Cost PoolsAmountPurchasing$ 45,000Handling materials50,000Production (cutting, milling, finishing)130,000Setting up machines85,000Inspecting60,000Inventory control (raw materials and finished goods)80,000Utilities100,000Total budgeted overhead costs$550,000For the last 4 years, Luxury Furniture has been charging overhead to products on the basis of materials cost. For the year 2017, materials cost of $500,000 were budgeted. Jim Brigham, owner-manager of Luxury Furniture, recently directed his accountant, Bob Borke, to implement the activity-based costing system that he has repeatedly proposed. At Jim Brigham’s request, Bob and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools. Overhead Cost PoolsActivity Cost DriversExpected Use of Cost DriversPurchasingNumber of orders500Handling materialsNumber of moves5,000Production (cutting, milling, finishing)Direct labor hours65,000Setting up machinesNumber of setups1,000InspectingNumber of inspections4,000Inventory control (raw materials and finished goods)Number of components40,000UtilitiesSquare feet occupied50,000Debbie Steiner, sales manager, has received an order for 12 luxury armoires from Thom’s Interior Design. At Debbie’s request, Bob prepares cost estimates for producing 12 armoires so Debbie can submit a contract price per armoire to Thom’s. He accumulates the following data for the production of 12 armoires. Direct materials$5,200Direct labor$3,500Direct labor hours200Number of purchase orders3Number of material moves32Number of machine setups4Number of inspections20Number of components640Number of square feet occupied320Instructions(b) Cost/ armoire (traditional) $1,201. 67(c) Cost/ armoire (ABC) $1,020. 83(a) Compute the predetermined overhead rate using traditional costing with materials cost as the basis. (b) What is the manufacturing cost per armoire under traditional costing?(c) What is the manufacturing cost per armoire 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 why?

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