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 |
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