C4_myhouseandproblems

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Overhead (aka Indirect) Costs and “Fairness” My House (#1)      House #2 Your House (#3) House 1 House 2 House 3 Direct Materials \$140,000 \$ 70,000 \$90,000 Direct Labor 210,000 130,000 60,000 Overhead* ? ? ? *Total indirect costs (aka “overhead costs”) are \$84,000. Indirect costs consist of (1) indirect material (\$8,000), (2) fringe benefits (\$21,000), and (3) construction equipment rental (\$55,000). In my ideal world, my house is house number one. As such, I believe distributing the overhead costs equally among the three houses is a fair way to assign costs. My specific recommendation is: \$84,000 overhead / 3 houses = \$28,000 per house. Your house is house number three. Do you agree with this assignment of cost?

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Practice Problems for Chapter 4 1. The process of assigning costs to two or more cost objects often requires a. cost tracing b. cost allocation c. cost/benefit analysis d. all of the above e. none of the above 2. Of the following statements, which is NOT true concerning indirect costs? a. An allocation rate for an indirect cost is determined by dividing the total cost to be allocated by an
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