Two reasons for using an annual budget period are a The numerator reasonthe

Two reasons for using an annual budget period are a

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4-8Two reasons for using an annual budget period are 4-1
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4-9 Actual costing and normal costing differ in their use of actual or budgeted indirect cost rates: Actual Costing Normal Costing Direct-cost rates Indirect-cost rates Actual rates Actual rates Actual rates Budgeted rates Each costing method uses the actual quantity of the direct-cost input and the actual quantity of the cost-allocation base. 4-10 A house construction firm can use job cost information (1) to determine the profitability of individual jobs, (2) to assist in bidding on future jobs, and (3) to evaluate professionals who are in charge of managing individual jobs. 4-11 The statement is false. In a normal costing system, the Manufacturing Overhead Control account will not, in general, equal the amounts in the Manufacturing Overhead Allocated account. The Manufacturing Overhead Control account aggregates the actual overhead costs incurred while Manufacturing Overhead Allocated allocates overhead costs to jobs on the basis of a budgeted rate times the actual quantity of the cost-allocation base. Underallocation or overallocation of indirect (overhead) costs can arise because of (1) the Numerator reason––the actual overhead costs differ from the budgeted overhead costs, or (2) the Denominator reason––the actual quantity used of the allocation base differs from the budgeted quantity. 4-12 Debit entries to Work-in-Process Control represent increases in work in process. Examples of debit entries under normal costing are (1) direct materials used (credit to Materials Control), (2) direct manufacturing labor billed to job (credit to Wages Payable Control), and (3) manufacturing overhead allocated to job (credit to Manufacturing Overhead Allocated). 4-13 Alternative ways to make end-of-period adjustments to dispose of underallocated or overallocated overhead are as follows: (i) Proration based on the total amount of indirect costs allocated (before proration) in the ending balances of work in process, finished goods, and cost of goods sold (ii) Proration based on total ending balances (before proration) in work in process, finished goods, and cost of goods sold (iii) Year-end write-off to Cost of Goods Sold (iv) The adjusted allocation rate approach that restates all overhead entries using actual indirect cost rates rather than budgeted indirect cost rates 4-14 A company might use budgeted costs rather than actual costs to compute direct labor rates because it may be difficult to trace direct labor costs to jobs as they are completed (for example, because bonuses are only known at the end of the year).
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