the job learning about what did and did not work bidding on new jobs and

The job learning about what did and did not work

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the job, learning about what did and did not work, bidding on new jobs, and preparing interim financial statements. Under actual costing, managers would only determine the cost of a job at the end of the year when they know actual manufacturing overhead costs. 4-23Job costing, normal and actual costing. Atkinson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2016, Atkinson budgets 2017 assembly-support costs to be $8,800,000 and 2017 direct labor-hours to be 220,000. At the end of 2017, Atkinson is comparing the costs of several jobs that were started and
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4-11 completed in 2017. 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 2017 actual assembly-support costs were $8,400,000, and the actual direct labor-hours were 200,000. Required: 1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ? 2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing? 3. Why might Atkinson Construction prefer normal costing over actual costing?
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4-12 3. Normal costing enables Atkinson 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 970 direct labor-hours are known for the Laguna Model (June 2017), Atkinson can compute the $181,600 cost figure using normal costing. Atkinson 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, Atkinson has to wait until the December 2017 year-end to compute the $183,540 cost of the Laguna Model using actual costing. Although not required, the following overview diagram summarizes Atkinson Construction’s job-costing system. INDIRECTCOSTPOOLCOSTALLOCATIONBASEDirectMaterialsCOST OBJECT:RESIDENTIALHOMEDIRECTCOSTS}}}DirectManufacturingLaborIndirect CostsDirect CostsAssemblySupportDirectLabor-Hours}4-24 Budgeted manufacturing overhead rate, allocated manufacturing overhead.
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