Reference no: EM132619959

Question - BillyJoel Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labour) and one indirect-cost pool (assembly support). Direct labour-hours is the allocation base for assembly support costs. In December 2016, BillyJoel budgets 2017 assembly-support costs to be $2,750,000 and 2017 direct labour-hours to be 120,000.

At the end of 2017, BillyJoel is comparing the costs of several jobs that were started and completed in 2017.

Bubba MODEL Bouey Model

Construction Period Feb - June 2017 May - Oct 2017

Direct Material Cost $116,550 $177,450

Direct Labour Cost $46,250 $47,130

Direct Labour Hours 990 1,100

Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labour-hours are worked. The 2017 actual assembly-support costs were $2,700,000, and the actual direct labour-hours were 100,000

Required -

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 Bubba Model and the Bouey Model using (a) normal costing and (b) actual costing?

3. Why might BillyJoel Construction prefer normal costing over actual costing?