Jackson 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 2005, Jackson budgets 2006 assembly-support costs to be &8,000,000 and direct labour-hours to be 160,000.


At the end of 2006, Jackson is comparing the costs of several jobs that were started in 2006.


Lockmore Model, Jamestown Model

Construction Period Feb-June 2006 , May-Oct 2006

Direct Materials $106,450 , $127,604

Direct labors $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 2006 actual assembly-support costs were $6,888,000, and the actual direct labor-hours were 164,000.


Questions:

1.Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?

2.What are job costs of the Lockmore Model and the Jamestown Model using (a) budgeting allocation costing and (b) ACTUAL ALLOCATION COSTING?

3.Why might Jackson prefer budgeted costing over actual costing?

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