# Direct labor hours is the allocation base for

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Chapter 26 / Exercise 13
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified
Direct labor-hours is the allocation base for assembly support costs. In December 2014, Amesbury budgets 2015 assembly-support costs to be \$8,300,000 and 2015 direct labor hours to be 166,000.
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Chapter 26 / Exercise 13
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified
J. Keith Baker © 2013At the end of 2015, Amesbury is comparing the costs of several jobs that were started and completed in 2015.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 2015 actual assembly-support costs were \$6,520,000, and the actual direct labor-hours were 163,000.Feb – June 2015 May – Oct 2015
J. Keith Baker © 2013Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?=Budgeted IndirectCosts Budgeted DirectLabor Hours=\$8,300,000166,000 hours= \$50 per dl hour=ActualIndirect Cost RateBudgetedIndirect Cost RateActual IndirectCosts Actual DirectLabor Hours\$6,520,000163,000 hours= \$40 per dl 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.
J. Keith Baker © 2013What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and(b) actual costing?
J. Keith Baker © 2013Why might Amesbury Construction prefer normal costing over actual costing?Normal costingenables Amesbury 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 960 direct labor-hours are known for the Laguna Model (June 2015), Amesbury can compute the \$191,710 cost figure using normal costing. Amesbury can use this information to manage the costsof 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 2015 year-end to compute the \$182,110 cost of the Laguna Model using actual costing.
J. Keith Baker © 2013End of Chapter 4