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, Amesbury budgets 2017 assembly-support costs to be $8,900,000 and 2017 direct labor-hours to be 178,000. At the end of 2017, Amesbury is comparing the costs of several jobs that were started and completed in 2017. 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 Amesbury Construction prefer normal costing over actual costing? Amesbury Construction might prefer normal costing over actual costing because normal costing (14) Amesbury can use this information to (15) 1: Data Table Laguna Model Mission Model Construction period Feb-June 2017 May-Oct 2017 Direct materials costs $106,440 $127,970 Direct labor costs $36,276 $41,520 Direct labor-hours 990 1,040 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 $6,042,000, and the actual direct labor-hours were 159,000. 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 Amesbury Construction prefer normal costing over actual costing?
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, Amesbury budgets 2017 assembly-support costs to be $8,900,000 and 2017 direct labor-hours to be 178,000. At the end of 2017, Amesbury is comparing the costs of several jobs that were started and completed in 2017. 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 Amesbury Construction prefer normal costing over actual costing? Amesbury Construction might prefer normal costing over actual costing because normal costing (14) Amesbury can use this information to (15) 1: Data Table Laguna Model Mission Model Construction period Feb-June 2017 May-Oct 2017 Direct materials costs $106,440 $127,970 Direct labor costs $36,276 $41,520 Direct labor-hours 990 1,040 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 $6,042,000, and the actual direct labor-hours were 159,000. 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 Amesbury Construction prefer normal costing over actual costing?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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.
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(1)
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/
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(2)
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=
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Budgeted indirect cost rate
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/
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=
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per DLH
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Identify the formula to calculate the actual indirect cost rate and then calculate the rate.
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(3)
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/
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(4)
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=
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Actual indirect cost rate
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|
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/
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=
|
|
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.
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(Normal costing)
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(6)
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x
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(7)
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=
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Indirect costs
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Laguna
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per DLH
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x
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=
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|
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Mission
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per DLH
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x
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=
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Now calculate the total costs using normal costing for each model.
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Laguna
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Mission
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Normal costing
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model
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model
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(8)
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(9)
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Total costs
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(b) Identify the formula to calculate the indirect costs under actual costing and then calculate the indirect costs for each model.
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(Actual costing)
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(10)
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x
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(11)
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=
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Indirect costs
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Laguna
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per DLH
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x
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=
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Mission
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per DLH
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x
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=
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Now calculate the total costs using actual costing for each model.
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Laguna
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Mission
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Actual Costing
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Model
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Model
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(12)
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(13)
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Total costs
|
|
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Requirement 3. Why might
Amesbury
Construction prefer normal costing over actual costing?Amesbury
Construction might prefer normal costing over actual costing because normal costing
(14)
Amesbury
can use this information to
(15)
1: Data Table
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|
|
Laguna Model
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Mission Model
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Construction period
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Feb-June 2017
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May-Oct 2017
|
|
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Direct materials costs
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$106,440
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$127,970
|
|
|
Direct labor costs
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$36,276
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$41,520
|
|
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Direct labor-hours
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990
|
1,040
|
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
$6,042,000,
and the actual direct labor-hours were
159,000.
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
Amesbury
Construction prefer normal costing over actual costing? |
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