Anderson Construction assembles residential homes. It uses a job-costing system with two direct cost categories (direct materials and direct labour) and one indirect cost pool (assembly support). The allocation base for assembly support costs is direct labour-hours.

In December 2015, Anderson budgets 2016 assembly support costs to be $8,000,000 and 2016 direct labourhours to be 160,000.

At the end of 2016, Anderson is comparing the costs of several jobs that were started and completed in 2016. Information for a couple of jobs follows.

Construction Period Laguna ModelMission Model

Feb-June 2016May-Oct 2016

Direct materials......................$106,450.........................$127,604

Direct labour..........................$ 36,276.........................$ 41,410

Direct labour-hours........................900.............................1,010

Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or direct labour-hours are worked. The 2016 actual assembly support costs were $6,888,000, while the actual direct labour-hours were 164,000.

Required

1. Compute the (a) budgeted and (b) actual indirect cost rate. Why do they differ?

2. What is the job cost of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing?

3. Why might Anderson Construction prefer normal costing over actual costing?