Question

In: Accounting

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

Benson 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 $ 109,000 $ 179,000
Direct materials 104,000 134,000 197,000

Assume Benson needs to allocate two major overhead costs ($36,000 of employee fringe benefits and $13,050 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

Employee fringe benefits can be allocated in the ratio of direct labor cost and Indirect material can be allocated in ratio of direct material used in each house.

Direct material

Direct labor

Overheads

Total Cost

House 1

$ 1,04,000.00

$      72,000.00

$ 10,320.00

$ 1,86,320.00

House 2

$ 1,34,000.00

$ 1,09,000.00

$ 14,920.00

$ 2,57,920.00

House 3

$ 1,97,000.00

$ 1,79,000.00

$ 23,810.00

$ 3,99,810.00

Working

Total Fringe benefits

$      36,000.00

Total Direct labor cost (72000+109000+179000)

$ 3,60,000.00

Overhead cost per $ of direct labor

$                 0.10

Total Indirect ,material cost

$      13,050.00

Total Direct material cost (104000+134000+197000)

$ 4,35,000.00

Overhead cost per $ of direct labor

$                 0.03

Direct material

Direct labor

Overheads

House 1

104000

72000

=(0.1*72000)+0.03*104000

House 2

134000

109000

=(0.1*109000)+0.03*134000

House 3

197000

179000

=(0.1*179000)+0.03*197000

ekkarill92 answered 1 year ago
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