Question
Anderson 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).
Anderson 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 is the allocation base for assembly support costs. In December 2016 Anderson budgets 2017 assembly-support costs to be
comma $8,500,000 and 2017 direct labor-hours to be comma 170,000. At the end of 2017, Anderson is comparing the costs of several jobs that were started and completed in
2017
Requirement 1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?
|
| Laguna Model | Mission Model |
Construction period | Feb-June 2017 | May-Oct 2017 | |
Direct materials costs | $106,570 | $127,125 | |
Direct labor costs | $36,475 | $41,650 | |
Direct labor-hours | 960 | 1,040 |
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 direct labor-hours are worked. The
2017
actual assembly-support costs were
$8,316,000,
and the actual directlabor-hours were
154,000.
1. | Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ? |
2. | What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing? |
3. | Why might AndersonAnderson Construction prefer normal costing over actual costing? |
Identify the formula to calculate the budgeted indirect cost rate and then calculate the rate.
| Budgeted direct costs | / |
| = | Budgeted indirect cost rate |
8500,000 | / | 170,000 | = | per DLH |
Identify the formula to calculate the actual indirect cost rate and then calculate the rate.
| Actual direct costs | / |
| = | Actual indirect cost rate |
8,316,000 | / | 154,000 | = | per DLH |
These rates differ because
.
Requirement 2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing?
(a) Identify the formula to calculate the indirect costs under normal costing and then calculate the indirect costs for each model.
(Normal costing) |
| x |
| = | 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 |
|
|
|
|
|
|
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) |
| x |
| = | 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 |
|
|
|
|
|
|
Total costs |
|
|
Requirement 3. Why might
AndersonAnderson
Construction prefer normal costing over actual costing?
AndersonAnderson
Construction might prefer normal costing over actual costing because normal costing
enables Anderson to report a job cost as soon as the job is completed.
provides more accurate cost data.
results in higher profits.
AndersonAnderson
can use this information to
evaluate previous years earnings.
manage the cost of their current jobs and bid on similar jobs later in the year.
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