Question

Fanning Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows:

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	80,000		$	98,000		$	186,000
Direct materials		102,000			132,000			180,000

Assume Fanning needs to allocate two major overhead costs ($54,600 of employee fringe benefits and $28,980 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costs and determine the total cost of each house. (Round "Allocation rate" to 2 decimal places.)

Fringe Benefits:
House	Allocation Rate	x	Weight of Base	=	Allocated Cost
1		x		=	$0
2		x		=	0
3		x		=	0
Total					$0
Indirect Materials:
House	Allocation Rate	x	Weight of Base	=	Allocated Cost
1		x		=	$0
2		x		=	0
3		x		=	0
Total					$0
The cost components to determine the total cost of each house:
Expected Costs	Home 1		Home 2		Home 3	Total
Direct labor						$0
Direct materials						0
Fringe benefits						0
Indirect Materials						0
Total cost	$0		$0		$0	$0

Answer 1

Fringe Benefits:
House	Allocation Rate	x	Weight of Base	=	Allocated Cost
1	0.15	x	$              80,000	=	$             12,000
2	0.15	x	$              98,000	=	$             14,700
3	0.15	x	$            186,000	=	$             27,900
Total			$            364,000		$             54,600
Indirect Materials:
House	Allocation Rate	x	Weight of Base	=	Allocated Cost
1	0.07	x	$            102,000	=	$               7,140
2	0.07	x	$            132,000	=	$               9,240
3	0.07	x	$            180,000	=	$             12,600
Total			$            414,000		$             28,980
The cost components to determine the total cost of each house:
Expected Costs	Home 1		Home 2		Home 3	Total
Direct labor	$               80,000		$              98,000		$           186,000	$ 364,000
Direct materials	$            102,000		$            132,000		$           180,000	$ 414,000
Fringe benefits	$               12,000		$              14,700		$             27,900	$    54,600
Indirect Materials	$                 7,140		$                 9,240		$             12,600	$    28,980
Total cost	$            201,140		$            253,940		$           406,500	$ 861,580

Allocaton rate for fringe benefits=	fringe benefit cost/direct labor dollars	54600/364000	0.15
Allocaton rate for indirect materials=	indirect mat cost/direct material dollars	28980/414000	0.07