Amesbury Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours as the 

allocation base for assembly support costs. In December 2016, Amesbury budgets 2017 assembly-support costs to be $8,500,000 and 2017 direct labor-hours to be 170,000. At the end of 2017, Amesbury

 

is comparing the costs of several jobs that were started and completed in

2017.

Read the

requirements2.

Requirement 1. Compute the(a) budgetedindirect-cost rate and(b) actualindirect-cost rate. Why do theydiffer?

Identify the formula to calculate the budgeted indirect cost rate and then calculate the rate.

(1)

/

(2)

=

Budgeted indirect cost rate

/

=

per DLH

Identify the formula to calculate the actual indirect cost rate and then calculate the rate.

(3)

/

(4)

=

Actual indirect cost rate

/

=

per DLH

These rates differ because

(5)

.

Requirement 2. What are the job costs of the Laguna Model and the Mission Model using(a) normal costing and(b) actualcosting?

(a) Identify the formula to calculate the indirect costs under normal costing and then calculate the indirect costs for each model.

(Normal costing)

(6)

x

(7)

=

Indirect costs

Laguna

per DLH

x

=

Mission

per DLH

x

=

Now calculate the total costs using normal costing for each model.

Laguna

Mission

Normal costing

model

model

(8)

(9)

Total costs

(b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model.

(Actual costing)

(10)

x

(11)

=

Indirect costs

Laguna

per DLH

x

=

Mission

per DLH

x

=

Now calculate the total costs using actual costing for each model.

Laguna

Mission

Actual Costing

Model

Model

(12)

(13)

Total costs

Requirement 3. Why might

Amesbury

Does construction prefer normal costing over actual costing?

Amesbury

Construction might prefer normal costing over actual costing because normal costing

(14)

Amesbury

can use this information to

(15)

1: Data Table

Laguna Model

Mission Model

Construction period

Feb-June 2017

May-Oct 2017

Direct materials costs

$106,430

$127,250

Direct labor costs

$36,740

$41,130

Direct labor-hours

920

1,080

Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct materials are used or when directlabor-hours are worked. The

2017

actualassembly-support costs were

$8,316,000,

and the actual directlabor-hours were

154,000.

2: Requirements

1.

Compute the(a) budgetedindirect-cost rate and(b) actualindirect-cost rate. Why do theydiffer?

2.

What are the job costs of the Laguna Model and the Mission Model using(a) normal costing and(b) actualcosting?

3.

Why might

Amesbury

Does construction prefer normal costing over actual costing?