Finch Construction Company expects to build three new homes during a specific accounting period. The estimated...

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.)

Solutions

Expert Solution

Fring benefit should be allocate using direct labor cost
Alloation rate =53250/(72000+93000+190000)
=0.15

House	Allocation	*	Weight of	=	Allocated
House	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
House	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

ekkarill92 answered 2 years ago

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