Question

Acre 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 2011, Acre budgets 2012 assembly- support costs to be $ 8,700,000 and 2012 direct labor- hours to be 145,000.
At the end of 2012, Acre is comparing the costs of several jobs that were started and completed in 2012.


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 2012 actual assembly- support costs were $ 7,470,000, and the actual direct labor- hours were 166,000.

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 actualcosting?


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  • CreatedJanuary 15, 2015
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