Caldwell Toys produces toys mainly for the domestic market. The company uses a job-costing system under which materials and labors used in the manufacturing process are directly allocated to different jobs. Whereas costs incurred in the manufacturing support department are indirect in nature and allocated to different jobs based on direct labor-hours. In December 2019, Caldwell budgets 2020 manufacturing-support costs to be $5,100,000 and 2020 direct labor-hours to be 150,000.

At the end of 2020, Caldwell collects the cost-related data of different jobs that were started and completed in 2020 for comparison. They are as follows:

Direct materials and direct labor are paid for on a contractual basis. The costs of each are known when direct materials are used or when direct labor-hours are worked. The 2020 actual manufacturing-support costs were $5,355,000 and the actual direct labor-hours were 153,000.

Required

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 Steel Wheels and the Magic Wheels using 

(a) Normal costing and 

(b) Actual costing?
3. Why might Caldwell Toys prefer normal costing over actual costing?

Transcribed Image Text:

Production period Direct material costs Direct labor costs Direct labor-hours Steel Wheels Jan-May 2020 $78,290 $25,445 840 Magic Wheels May-Sept 2020 $94,650 $32,752 960