Job costing, normal and actual costing. Amesbury 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 2010, Amesbury budgets 2011 assembly-support costs to be $8,300,000 and 2011 direct labor-hours to be 166,000. At the end of 2011, Amesbury is comparing the costs of several jobs that were started and completed in 2011.
Direct material costs
Direct labor costs
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 2011 actual assembly-support costs were $6,520,000, and the actual direct labor-hours were 163,000.
1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ? Required
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 Amesbury Construction prefer normal costing over actual costing?