Question

1 Data Table Laguna Model Construction period Direct materials costs Direct labor costs Direct labor-hours Feb-June 2017 106,440 $ 36,625 $ Mission Model May-Oct 2017 127,250 41,130 1,090 $ 970 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 $7,425,000, and the actual direct labor-hours were 165,000. Print Done X 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 Acre Construction prefer normal costing over actual costing? Print Done Done

Answer 1

1.

Budgeted indirect cost rate:
Budgeted assembly-support costs	/	Budgeted direct labor hours	=	Budgeted indirect cost rate
$8,300,000	/	166,000	=	$50 per DLH
Actual indirect cost rate:
Actual assembly-support costs	/	Actual direct labor hours	=	Actual indirect cost rate
$7,425,000	/	165,000	=	$45 per DLH
These rates differ because of difference in budgeted and actual indirect cost and direct labor hours

2.

a.

(Normal costing)	Budgeted indirect cost rate	$\times$	Direct labor hours	=	Indirect costs
Laguna	$50	$\times$	970	=	$48,500
Mission	50	$\times$	1,090	=	54,500

Normal costing	Laguna model	Mission model
Direct material	$106,440	$127,250
Direct labor	36,625	41,130
Indirect costs	48,500	54,500
Total costs	$191,565	$222,880

b.

(Actual costing)	Actual indirect cost rate	$\times$	Direct labor hours	=	Indirect costs
Laguna	$45	$\times$	970	=	$43,650
Mission	45	$\times$	1,090	=	49,050

Actual costing	Laguna model	Mission model
Direct material	$106,440	$127,250
Direct labor	36,625	41,130
Indirect costs	43,650	49,050
Total costs	$186,715	$217,430

3.

Acre construction might prefer normal costing over actual costing because normal costing enables Acre to report a job cost as soon as the job is completed. Acre can use this information to manage the cost of their current jobs and bid on similar jobs later in the year.