Job Costing, Normal and Actual Costing

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 2020, Anderson budgets 2021 assembly-support costs to be $8.000.000 and 2021 direct labor-hours to be 160.000.

At the end of 2021, Anderson is comparing the costs of several jobs that were started and completed in 2021.

Laguna Model Mission Model Construction Period Feb-June 2021 May-Oct 2021 Direct Materials $106.450 $127.604 Direct Labor $36.276 $41.410 Direct Labor-hours 900 1.010

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 2021 actual assembly-support costs were $6.888.000, and the actual direct labor-hours were 164.000.

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 Anderson Construction prefer normal costing over actual costing? 4. What is the total amount of over/under absortion?