Avery 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, Avery budgets 2017 assembly-support costs to be $8,300,000 and 2017 direct labor-hours to be 166,000. At the end of 2017, Avery is comparing the costs of several jobs that were started and completed in 2017.

Requirements

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 Avery Construction prefer normal costing over actual costing?