In: Accounting
Finch Construction Company expects to build three new homes
during a specific accounting period. The estimated direct materials
and labor costs are as follows.
Expected Costs | Home 1 | Home 2 | Home 3 | ||||||
Direct labor | $ | 72,000 | $ | 93,000 | $ | 190,000 | |||
Direct materials | 106,000 | 150,000 | 186,000 | ||||||
Assume Finch needs to allocate two major overhead costs ($53,250 of
employee fringe benefits and $22,100 of indirect materials costs)
among the three jobs.
Required
Choose an appropriate cost driver for each of the overhead costs
and determine the total cost of each house. (Round
"Allocation rate" to 2 decimal places.)
Fring benefit should be allocate using direct labor cost | ||||||
Alloation rate =53250/(72000+93000+190000) | ||||||
=0.15 | ||||||
House | Allocation | * | Weight of | = | Allocated | |
rate | Base | cost | ||||
1 | 0.15 | * | 72000 | = | 10800 | |
2 | 0.15 | * | 93000 | = | 13950 | |
3 | 0.15 | * | 190000 | = | 28500 | |
Total | 53250 | |||||
Indirect materials | ||||||
Allocate indirect material cost using direct material cost | ||||||
Allocation rate=Total indirect material cost/Total direct material cost=22100/(106000+150000+186000) =0.05 | ||||||
House | Allocation | * | Weight of | = | Allocated | |
rate | Base | cost | ||||
1 | 0.05 | * | 106000 | = | 5300 | |
2 | 0.05 | * | 150000 | = | 7500 | |
3 | 0.05 | * | 186000 | = | 9300 | |
Total | 22100 | |||||
The cost component to determine the total cost of each house: | ||||||
Cost | Home 1 | Home 2 | Home 3 | |||
Direct labor | 72000 | 93000 | 190000 | |||
Direct materials | 106000 | 150000 | 186000 | |||
Fringe benefits | 10800 | 13950 | 28500 | |||
Indirect materials | 5300 | 7500 | 9300 | |||
Total cost | 194100 | 264450 | 413800 | |||