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Job costing, normal and actual costing. Atkinson 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 2016, Atkinson budgets 2017 assembly-support costs to be $8,800,000 and 2017 direct labor-hours to be 220,000.
At the end of 2017, Atkinson is comparing the costs of several jobs that were started and completed in 2017.
Laguna Model | Mission Model | |
Construction period | Feb–June 2017 | May–Oct 2017 |
Direct material costs | $106,550 | $127,450 |
Direct labor costs | $36,250 | $41,130 |
Direct labor-hours | 970 | 1,000 |
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 $8,400,000, and the actual direct labor-hours were 200,000.
- 1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?
Required
- 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 Atkinson Construction prefer normal costing over actual costing?
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