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Ashton 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, Ashton budgets 2017 assembly-support costs to be $8,300,000 and 2017 direct labor-hours to be 166,000. At the end of 2017, Ashton is comparing the costs of several jobs that were started and completed in 2017. E (Click the icon to view the data.) Read the requirements. Requirements Data Table 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 2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing? Direct materials costs 106,550 $ 127,325 3. Why might Ashton Construction prefer normal costing over actual costing? 36,475 $ Direct labor costs 41,860 Direct labor-hours 960 1,060 Print Done 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 $6,642,000, and the actual direct labor-hours were 162,000. Print Done Requirement 1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ? Identify the formula to calculate the budgeted indirect cost rate and then calculate the rate. Budgeted indirect costs Budgeted direct labor hours Budgeted indirect cost rate per DLH Identify the formula to calculate the actual indirect cost rate and then calculate the rate. Actual indirect costs Actual direct labor hours Actual indirect cost rate per DLH These rates differ because both the cost and hour amounts in the two calculations are different 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. Budgeted indirect cost rate Actual direct labor hours (Normal costing) Indirect costs Laguna per DLH Mission per DLH Now calculate the total costs using normal costing for each model. Laguna Mission Normal costing model model Direct costs Indirect costs Total costs (b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model. Actual indirect cost rate Actual direct labor hours (Actual costing) Indirect costs Laguna per DLH 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. Budgeted indirect cost rate Actual direct labor hours (Normal costing) Indirect costs Laguna per DLH per DLH Mission Now calculate the total costs using normal costing for each model. Laguna Mission Normal costing model model Direct costs Indirect costs Total costs (b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model. Actual indirect cost rate Actual direct labor hours (Actual costing) Indirect costs per DLH Laguna %24 per DLH Mission Now calculate the total costs using actual costing for each model. Laguna Mission Actual Costing Model Model Direct costs 24 Indirect costs Total costs Requirement 3. Why might Ashton Construction prefer normal costing over actual costing? Ashton Construction might prefer normal costing over actual costing because normal costing enables Ashton to report a job cost as soon as the job is completed. Ashton can use this information to manage the cost of their current jobs and bid on similar jobs later in the year
