Question
Case Construction Company, a three-year-old business, provides contracting and construction services to a variety of clients. Given that each construction job is different from any
Case Construction Company, a three-year-old business, provides contracting and construction services to a variety of clients. Given that each construction job is different from any other, company accountant Susan Kalagnanam decided that it was best to use a job-order costing system to allocate costs to the different jobs. She decided to use construction labour-hours as the basis for overhead allocation. In December 2020, she estimated the following amounts for the year 2021:
Direct materials | $ | 13,977,600 | |
Construction labour | 8,760,000 | ||
Overhead | 10,073,500 | ||
Construction labour-hours | 480,000 | ||
Kalagnanam recorded the following for the first quarter of 2021 for the three jobs that the company started and completed during the quarter:
School | Residential | Cinema | |||||||
Direct materials | $ | 786,250 | $ | 943,500 | $ | 1,415,250 | |||
Construction labour-hours | 64,800 | 38,400 | 16,800 | ||||||
Required:
1. Compute the cost of each job using the current system of cost allocation. (Round intermediate calculations to 2 decimal places.)
2. Tyler Case, the companys CEO, recently returned from a seminar on activity-based costing and instructed Kalagnanam to consider implementing the new system. As a first step, he instructed her to analyze the overhead costs for 2021. Through her research she was able to derive the following breakdown of the estimated overhead costs for 2021:
Activity | Amount | Activity Measure | Activity Volume | ||||
Foundation laying | $ | 2,527,500 | Foundation-laying hours | 404,400 | |||
Building construction | 2,520,000 | Construction labour-hours | 480,000 | ||||
Painting | 2,650,000 | Painting-hours | 530,000 | ||||
Finishing | 2,376,000 | Finishing-hours | 720,000 | ||||
She also documented the following activity on the three jobs during the first quarter of 2021 (in addition to the construction labour-hours consumed by the three jobs):
Schfool | Residential | Cinema | |
Foundation-laying hours | 51,780 | 50,160 | 59,860 |
Painting-hours | 69,960 | 43,725 | 61,215 |
Finishing-hours | 37,440 | 56,160 | 93,600 |
a. Calculate the activity rates for each of the four activities. (Round your answers to 2 decimal places.)
b. Calculate the total cost of each job using activity-based costing. (Do not round intermediate calculations and round your final answers nearest to whole number.)
3. This part of the question is not part of your Connect assignment.
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