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# Job costing: normal and actual costing

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Job costing, normal and actual costing.

Anderson 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 2006, Anderson budgets 2007 assembly-support costs to be \$8,000,000 and 2007 direct labor-hours to be 160,000.
At the end of 2007, Anderson is comparing the costs of several jobs that were started and completed in 2007.

Laguna Model Mission Model
Construction period Feb-June 2007 May-Oct 2007
Direct materials \$106,450 \$127,604
Direct labor \$36,276 \$41,410
Direct labor-hours 900 1,010
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 2007 actual assembly-support costs were \$6,888,000, and the actual direct labor-hours were 164,000.

1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?
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 Anderson Construction prefer normal costing over actual costing?

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#### Solution Summary

Excel file contains calculation of budgeted indirect-cost rate and actual indirect-cost rate and the job costs of the normal costing and actual costing.

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## Job and process costing / normal and actual costing

Exercises
Job costing, process costing. In each of the following situations, determine whether job costing or
process costing would be more appropriate.
Situation JOB COSTING OR PROCESS COSTING EXPLANATION
a. A CPA firm
b. An oil refinery
c. A custom furniture manufacturer
d. A tire manufacturer
e. A textbook publisher
f. A pharmaceutical company
g. An advertising agency
h. An apparel manufacturing plant
i. A flour mill
j. A paint manufacturer
k. A medical care facility
l. A landscaping company
m. A cola-drink-concentrate producer
n. A movie studio
o. A law firm
p. A commercial aircraft manufacturer
q. A management consulting firm
r. A breakfast-cereal
t. A paper mill
u. An auto repair shop

Job costing, normal and actual costing. Anderson 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
2006, Anderson budgets 2007 assembly-support costs to be \$8,000,000 and 2007 direct labor-hours to be
160,000.
At the end of 2007, Anderson is comparing the costs of several jobs that were started and completed in 2007. 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 2007 actual assembly-support costs

1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?
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 Anderson Construction prefer normal costing over actual costing?

Laguna Model Mission Model
Construction period
Direct materials
Direct labor
Direct labor-hours Feb¡VJune 2007
\$106,450
\$36,276
900 May¡VOct 2007
\$127,604
\$41,410
1,010

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