pieieu s8 tar. It does not in Exercise 12-8 Allocating costs among products LO 1

Question

pieieu s8 tar. It does not in Exercise 12-8 Allocating costs among products LO 12-3 Gibson 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 Direct labor $80,000 S 94,000 $187,000 Direct materials Home 1Home 2 Home 3 92,000 139,000 195,000 Assume Gibson needs to allocate two major overhead costs ($54.150 of employee fringe benefits and $12,780 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 "Ailocation rate to 2 decimal places.) Answer is complete but not entirely correct. ringe Benefits: Allocation Allocated Weight of S 80,000 94000 187 000 House Cost S 308,800 362.840 374,000 S 1.045,640 3.86 3 86 3x 200x Total 1 of 3 Next >

Explanation / Answer

The appropriate cost driver for fringe benefits would be direct labor cost and for Indirect materials would be Direct materials costs. Fringe Benefits House Allocation Rate x Weight of base = Allocated cost 1 0.15 x 80000 = 12000 2 0.15 x 94000 = 14100 3 0.15 x 187000 = 28050 Total 54150 *54150/(80000+94000+187000) = 0.15 Indirect materials House Allocation Rate x Weight of base = Allocated cost 1 0.03 x 92000 = 2760 2 0.03 x 139000 = 4170 3 0.03 x 195000 = 5850 Total 12780 *12780/(92000+139000+195000) = 0.03 Cost of house Home 1 Home 2 Home 3 Total Direct labor 80000 94000 187000 361000 Direct materials 92000 139000 195000 426000 Fringe Benefits 12000 14100 28050 54150 Indirect materials 2760 4170 5850 12780 Total cost 186760 251270 415900 853930

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