12 HW- Ex12-B& P12-18 Exercise 12-8 Allocating costs among products LO 12-3 Rund

Question

12 HW- Ex12-B& P12-18 Exercise 12-8 Allocating costs among products LO 12-3 Runde Construction Company expects to build three new homes during a specitic accounting perlod. The estimated direct materials and labor costs are as follows Assume Runde needs to allocate two major overhead costs (535,900 of employee fringe benefits and $34,480 of indirect materials costsj among the three jobs Required Choose an appropriate cost driver for each of the overhead costs and dedeemine the total cost of each house (Round Allocation re to 2 decimai pleces

Explanation / Answer

Solution :

Allocation base for Fringe benefit = Direct labor cost

Allocation base for indirect material = Direct material cost

Allocation rate of fringe benefit = Fringe benefit / Total direct labor cost = $35,900 / $359,000 = $0.10 per direct labor dollar

Allocation rate of indirect material = Indirect material cost / Direct material cost = $34,480 / $431,000 = $0.08 per direct material dollar

Fringe Benefits Home Allocation rate * Weight of Base = Allocated Cost 1 $0.10 $66,000.00 $6,600.00 2 $0.10 $107,000.00 $10,700.00 3 $0.10 $186,000.00 $18,600.00 Total $35,900.00

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