Question

Benson Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows Direct labor Direct materials $71,000 $ 98,000 $171,000 91,000 148,000 183,000 Assume Benson needs to allocate two major overhead costs ($34,000 of employee fringe benefits and $29,540 of indirect materials costs) among the three jobs. Required Choose an appropriate cost driver for each of the overheed costs and determine the total cost of each house. (Round "Allocation rate" to 2 decimal places.) Fringe Benefits: Total

Answer 1

Allocation rate:
Fringe Benefits (basaed on direct labour): Total Fringe benefits cost/ Direct labour cost *100
			$ 34000 /340000 *100 = 10% of Labour cost
Indirect Material (based on indirect material): Indirect material cost/ Direct Material cost *100
			$ 29540 / 422,000 *100 = 7% of Material cost
Fringe benefits
Home		Allocation rate		Weights of Base =		Allocated cost
1		10%		71000		7100
2		10%		98000		9800
3		10%		171000		17100
Total						34000
Indirect Material
Home		Allocation rate		Weights of Base =		Allocated cost
1		7%		91000		6370
2		7%		148000		10360
3		7%		183000		12810
Total						29540
Expected Cost
			Home 1	Home 2	Home 3
Direct Labour			71000	98000	171000
Direct Material			91000	148000	183000
Fringe benefits			7100	9800	17100
Indirect material			6370	10360	12810
Total cost			175470	266160	383910