Exercise 12-8 Allocating costs among products LO 12-3 Fanning Construction Compa

Question

Exercise 12-8 Allocating costs among products LO 12-3 Fanning Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows: Expected Costs Home 1 Home 2 Home 3 Direct labor $ 73,000 $ 91,000 $ 185,000 Direct materials 100,000 144,000 196,000 Assume Fanning needs to allocate two major overhead costs ($69,800 of employee fringe benefits and $26,400 of indirect materials costs) among the three jobs. Required Choose an appropriate cost driver for each of the overhead costs and determine the total cost of each house. (Round "Allocation rate" to 2 decimal places.) N

Explanation / Answer

Home 1 Home 2 Home 3 Total Direct Labor 73000 91000 185000 349000 Direct Materials 100000 144000 196000 440000 Fridge Benefits 69800*73000/349000 69800*91000/349000 69800*185000/349000 69800 For Fridge benefits direct labor an be used as cost driver 14600 18200 37000 Indirect Material costs 26400*100000/440000 26400*144000/440000 26400*196000/440000 26400 For Indirect material costs direct material cost can be used as cost driver 6000 8640 11760 26400 Total Costs 193600 261840 429760

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