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 20X4, she estimated the following amounts for the year 20X5:
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Direct materials | $14,560,000 |
Construction labour | 9,800,000 |
Overhead | 7,510,000 |
Construction labour-hours | 500,000 |
Kalagnanam recorded the following for the first quarter of 20X5 for the three jobs that the company started and completed during the quarter:
School | Residential | Cinema | |
Direct materials | $824,000 | $1,034,600 | $1,425,000 |
Construction labour-hours | 66,400 | 37,200 | 18,500 |
Required:
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Compute the cost of each job using the current system of cost allocation.
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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 20X5. Through her research she was able to derive the following breakdown of the estimated overhead costs for 20X5:
Activity Amount Activity Measure Activity Volume Foundation laying $1,685,000 Foundation-laying hours 421,250 Building construction 1,740,000 Construction labour-hours 500,000 Painting 1,760,000 Painting-hours 550,000 Finishing 2,325,000 Finishing-hours 750,000 She also documented the following activity on the three jobs during the first quarter of 20X5 (in addition to the construction labour-hours consumed by the three jobs):
School Residential Cinema Foundation-laying hours 39,550 38,500 44,250 Painting-hours 49,380 36,120 47,660 Finishing-hours 41,460 60,600 94,000 Calculate the following:
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The total cost of each job using activity-based costing.
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