Question

Ashton 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 2016​, Ashton budgets 2017 ​assembly-support costs to be $ 8 comma 300 comma 000 and 2017 direct​ labor-hours to be 166 comma 000. At the end of 2017​, Ashton is comparing the costs of several jobs that were started and completed in 2017. Compute the​ (a) budgeted​ indirect-cost rate and​ (b) actual​ indirect-cost rate. Question 3 options: $50; $35 $35; $50

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

In December 2016​, Ashton budgeted 2017 ​assembly-support costs to be $8,300,000 and 2017 direct​ labor-hours to be 166,000.

With this information, we can calculate the budgeted indirect cost rate. However, we can't calculate the actual indirect cost rate. I will provide the formula for both and a small example of the actual indirect cost rate.

To calculate the budgeted indirect cost rate, we need to use the following formula:

Budgeted indirect cost rate= total estimated indirect costs for the period/ total amount of allocation base

Budgeted indirect cost rate= 8,300,000/166,000= $50 per direct labor hour.

Let's suppose that actual indirect cost was of 8,000,000 and actual direct labor hours of 175,000:

Actual indirect cost rate= total actual indirect costs for the period/ total amount of allocation base

Actual indirect cost rate= 8,000,000/175,000= $45.71 per direct labor hour