Budgeted indirect costs
Budgeted direct labor-hours
$50 per direct labor-hour
Actual indirect costs
Actual direct labor-hours
$42 per direct labor-hour
These rates differ because both the numerator and the denominator in the two calculations are
different—one based on budgeted numbers and the other based on actual numbers.
Normal costing enables Anderson to report a job cost as soon as the job is completed,
assuming that both the direct materials and direct labor costs are known at the time of use. Once
the 900 direct labor-hours are known for the Laguna Model (June 2007), Anderson can compute
the $187,726 cost figure using normal costing. Anderson can use this information to manage the
costs of the Laguna Model job as well as to bid on similar jobs later in the year. In contrast,
Anderson has to wait until the December 2007 year-end to compute the $180,526 cost of the
Laguna Model using actual costing.