Demo_WP Chapter 4

Demo_WP Chapter 4 - Demo Chapter 4 Allocating Indirect...

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Demo Chapter 4 Allocating Indirect Costs A builder is constructing three houses simultaneously. The direct materials and direct labor costs for each house are shown below: House 1 House 2 House 3 Direct Materials $140,000 $ 70,000 $90,000 Direct Labor 210,000 130,000 60,000 Overhead ? ? ? Indirect costs such as supervisory salaries and indirect materials are $84,000. Required: a. Assume the builder allocates overhead (indirect) costs equally among the three houses. Determine the amount of overhead cost allocated to each house. Comment on whether this allocation scheme is reasonable. Explain why it may be inappropriate to use number of units as the allocation base. $84,000 ÷ 3 = $ overhead cost per house. b. Assume instead that the builder allocates overhead costs based on total direct costs. Determine the amount of overhead cost allocated to each house. Compare the allocations determined in requirement a with the allocations determined in requirement b . Identify who will benefit and who will suffer if the builder uses the
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This note was uploaded on 02/22/2012 for the course BUAD 2050 taught by Professor Nicholasw.schroeder during the Spring '09 term at Toledo.

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Demo_WP Chapter 4 - Demo Chapter 4 Allocating Indirect...

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