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 2009 are as follows.
Overhead Cost Pools Amount
Purchasing $58,800
Handling materials 82,720
Production (cutting, milling, finishing) 211,000
Setting up machines 90,000
Inspecting 96,000
Inventory control (raw materials and finished goods) 127,680
Utilities 360,000
Total budget overhead costs $1,026,200
For the last 4 years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2009, 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 pools.
Activity Cost Pools Cost Drivers
Expected
Use of
Cost Drivers
Purchasing Number of orders 600
Handling materials Number of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,250
Inspecting Number of inspections 6,000
Inventory control (raw materials and finished goods) Number of components 168,000
Utilities Square feet occupied 90,000
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 $104,200
Direct labor $112,900
Machine hours 15,100
Direct labor hours 5,600
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
Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 3 decimal places, e.g. 2.250.)
Answer is in $ per machine hour.