i would like assistance on this scenario please

Maryville Manufacturing designs and builds custom mudroom storage benches.All of the mudroom storage benches are constructed with rustic hickory.Its budgeted manufacturing costs for the 2018 year are as follows.

Overhead Cost Pools

Amount

Purchasing

$45,000

Handling materials

50,000

Production (cutting, milling, finishing)

130,000

Setting up machines

85,000

Inspecting

60,000

Inventory control (raw materials and finished goods)

80,000

Utilities

100,000

Total budgeted overhead costs

$550,000

For the last 5 years, Maryville Manufacturing has been charging overhead to products on the basis of materials cost.For the year 2018, materials cost of $500,000 were budgeted.

Jim Johnson, owner-manager of Maryville Manufacturing, recently directed his accountant, Ledger Kaufman, to implement the activity-based costing system that he has repeatedly proposed.At Jim’s request, Ledger and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Overhead Cost Pools

Activity Cost Drivers

Expected Use of Cost Drivers

Purchasing

Number of orders

500

Handling materials

Number of moves

5,000

Production (cutting, milling, finishing)

Direct labor hours

65,000

Setting up machines

Number of setups

1,000

Inspecting

Number of inspections

4,000

Inventory control (raw materials and finished goods)

Number of components

40,000

Utilities

Square feet occupied

50,000

Doug Russell, sales manager, has received an order for 12 custom mudroom storage benches from Homes by Kathy.At Doug’s request, Ledger prepares costs estimates for producing 12 mudroom storage benches so Doug can submit a contract price per mudroom storage bench to Homes by Kathy.He accumulates the following data for the production of 12 mudroom storage benches.

Direct materials

$5,200

Direct labor

$3,500

Direct labor hours

200

Number of purchase orders

3

Number of material moves

32

Number of machine setups

4

Number of inspections

20

Number of components

640

Number of square feet occupied

320

Required:

  • Compute the predetermined overhead rate using traditional costing with direct materials cost as the allocation base.
  • Compute the total cost of manufacturing one mudroom storage bench using direct materials cost as the allocation base for manufacturing overhead.
  • Compute the predetermined overhead rate using traditional costing with direct labor hours as the allocation base.
  • Compute the total cost of manufacturing one mudroom storage bench using direct labor hours as the allocation for manufacturing overhead.
  • Compute the predetermined overhead rate per cost driver for each of the overhead cost pools using the proposed activity-based costing system.
  • Compute the total cost of manufacturing one mudroom storage bench using the proposed activity-based costing system.
  • Which allocation base is preferable under traditional costing and why?
  • Which costing system (traditional or activity-based) is preferable in pricing decisions and why?
  • Prepare a formal memo addressed to the owner of the company that includes a recommendation related to the adoption of activity-based costing.

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