Home Construction Ltd builds units in retirement complexes in remote communities. It uses a job-costing system with two direct-cost categories (direct materials and direct labour) and two indirect-cost pools (building support and logistics). Direct labor-hours is the cost driver for building-support costs and direct materials costs is the cost driver for logistics. In December 2018, Home Construction budgets 2019 building-support costs to be $8 800 000, and direct labour-hours to be 220 000. At the end of 2019, management is comparing the costs of several jobs that were started and completed in 2019: Grandvista model Sunnylook model Construction period Feb–June 2019 May–Oct 2019 Direct materials costs $106 550 $127 450 Direct labour costs $ 36 250 $ 41 130 Direct labour-hours 970 1 000 Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labour-hours are worked. The 2019 actual building-support costs were $8 525 000, the actual direct labour-hours were 155 000 and actual direct materials costs were $82 500 000. Required Calculate: (a) the budgeted cost-driver rate and (b) the actual cost-driver rate. Explain the difference between them. Calculate the job costs of the Grandvista model and the Sunnylook model using: (a) normal costing and (b) actual costing. Explain why managers might prefer normal costing over actual costing.
Home Construction Ltd builds units in retirement complexes in remote communities. It uses a job-costing system with two direct-cost categories (direct materials and direct labour) and two indirect-cost pools (building support and logistics). Direct labor-hours is the cost driver for building-support costs and direct materials costs is the cost driver for logistics. In December 2018, Home Construction budgets 2019 building-support costs to be $8 800 000, and direct labour-hours to be 220 000.
At the end of 2019, management is comparing the costs of several jobs that were started and completed in 2019:
Grandvista model Sunnylook model
Construction period Feb–June 2019 May–Oct 2019
Direct materials costs $106 550 $127 450
Direct labour costs $ 36 250 $ 41 130
Direct labour-hours 970 1 000
Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labour-hours are worked. The 2019 actual building-support costs were $8 525 000, the actual direct labour-hours were 155 000 and actual direct materials costs were $82 500 000.
Required
- Calculate: (a) the budgeted cost-driver rate and (b) the actual cost-driver rate. Explain the difference between them.
- Calculate the
job costs of the Grandvista model and the Sunnylook model using: (a) normal costing and (b) actual costing. - Explain why managers might prefer normal costing over actual costing.
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