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 as the allocation base for assembly support costs. In December 2016, Ashton budgets 2017 assembly-support costs to be $8,100,000 and 2017 direct labor-hours to be 135,000. At the end of 2017, Ashton is comparing the costs of several jobs that were started and completed in 2017. Read the requirements2. 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. (1) / (2) = Budgeted indirect cost rate / = per DLH Identify the formula to calculate the actual indirect cost rate and then calculate the rate. (3) / (4) = Actual indirect cost rate / = per DLH These rates differ because (5) . 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. (Normal costing) (6) x (7) = Indirect costs Laguna per DLH x = Mission per DLH x = Now calculate the total costs using normal costing for each model. Laguna Mission Normal costing model model (8) (9) Total costs (b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model. (Actual costing) (10) x (11) = Indirect costs Laguna per DLH x = Mission per DLH x = Now calculate the total costs using actual costing for each model. Laguna Mission Actual Costing Model Model (12) (13) Total costs Requirement 3. Why might Ashton Does construction prefer normal costing over actual costing? Ashton Construction might prefer normal costing over actual costing because normal costing (14) Ashton can use this information to (15) 1: Data Table Laguna Model Mission Model Construction period Feb-June 2017 May-Oct 2017 Direct materials costs $106,350 $127,970 Direct labor costs $36,740 $41,650 Direct labor-hours 980 1,070 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 $6,888,000, and the actual direct labor-hours were 164,000. 2: 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 Ashton Construction prefer normal costing over actual costing?
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 as the allocation base for assembly support costs. In December 2016, Ashton budgets 2017 assembly-support costs to be $8,100,000 and 2017 direct labor-hours to be 135,000. At the end of 2017, Ashton is comparing the costs of several jobs that were started and completed in 2017. Read the requirements2. 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. (1) / (2) = Budgeted indirect cost rate / = per DLH Identify the formula to calculate the actual indirect cost rate and then calculate the rate. (3) / (4) = Actual indirect cost rate / = per DLH These rates differ because (5) . 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. (Normal costing) (6) x (7) = Indirect costs Laguna per DLH x = Mission per DLH x = Now calculate the total costs using normal costing for each model. Laguna Mission Normal costing model model (8) (9) Total costs (b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model. (Actual costing) (10) x (11) = Indirect costs Laguna per DLH x = Mission per DLH x = Now calculate the total costs using actual costing for each model. Laguna Mission Actual Costing Model Model (12) (13) Total costs Requirement 3. Why might Ashton Does construction prefer normal costing over actual costing? Ashton Construction might prefer normal costing over actual costing because normal costing (14) Ashton can use this information to (15) 1: Data Table Laguna Model Mission Model Construction period Feb-June 2017 May-Oct 2017 Direct materials costs $106,350 $127,970 Direct labor costs $36,740 $41,650 Direct labor-hours 980 1,070 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 $6,888,000, and the actual direct labor-hours were 164,000. 2: 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 Ashton Construction prefer normal costing over actual costing?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
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 as the allocation base for assembly support costs. In December
2016, Ashton budgets 2017 assembly-support costs to be $8,100,000 and
2017 direct labor-hours to be 135,000. At the end of 2017, Ashton is
comparing the costs of several jobs that were started and completed in 2017.
Read the requirements2.
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.
|
|
(1)
|
/
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(2)
|
=
|
Budgeted indirect cost rate
|
|
|
/
|
|
=
|
|
per DLH
|
Identify the formula to calculate the actual indirect cost rate and then calculate the rate.
|
|
(3)
|
/
|
(4)
|
=
|
Actual indirect cost rate
|
|
|
/
|
|
=
|
|
per DLH
|
These rates differ because
(5)
.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.
|
(Normal costing)
|
(6)
|
x
|
(7)
|
=
|
Indirect costs
|
|
|
Laguna
|
|
per DLH
|
x
|
|
=
|
|
|
|
Mission
|
|
per DLH
|
x
|
|
=
|
|
Now calculate the total costs using normal costing for each model.
|
|
Laguna
|
Mission
|
|
Normal costing
|
model
|
model
|
|
(8)
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|
|
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(9)
|
|
|
|
Total costs
|
|
|
(b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model.
|
(Actual costing)
|
(10)
|
x
|
(11)
|
=
|
Indirect costs
|
|
|
Laguna
|
|
per DLH
|
x
|
|
=
|
|
|
|
Mission
|
|
per DLH
|
x
|
|
=
|
|
Now calculate the total costs using actual costing for each model.
|
|
Laguna
|
Mission
|
|
Actual Costing
|
Model
|
Model
|
|
(12)
|
|
|
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(13)
|
|
|
|
Total costs
|
|
|
Requirement 3. Why might
Ashton
Does construction prefer normal costing over actual costing?Ashton
Construction might prefer normal costing over actual costing because normal costing
(14)
Ashton
can use this information to
(15)
1: Data Table
|
|
|
Laguna Model
|
Mission Model
|
|
Construction period
|
Feb-June 2017
|
May-Oct 2017
|
|
|
Direct materials costs
|
$106,350
|
$127,970
|
|
|
Direct labor costs
|
$36,740
|
$41,650
|
|
|
Direct labor-hours
|
980
|
1,070
|
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
$6,888,000,
and the actual direct labor-hours were
164,000.
2: 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
Ashton
Construction prefer normal costing over actual costing? |
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