Zachary Construction Company expects to build three new homes during a specific

Question

Zachary Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows:

Assume Zachary needs to allocate two major overhead costs ($52,350 of employee fringe benefits and $26,220 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.)

Expected Costs Home 1 Home 2 Home 3 Direct labor $ 79,000 $ 96,000 $ 174,000 Direct materials 96,000 145,000 196,000

Explanation / Answer

Employee fringe benefits are allocated on the basis of Direct labor costs and indirect materials costs are allocated on the basis of Direct materials Expected Costs Home 1 Home 2 Home 3 Total Direct labor 79000 96000 174000 349000 Direct materials 96000 145000 196000 437000 Total direct costs 175000 241000 370000 786000 Allocation rate for employee fringe benefits = 52350/349000= 15% Allocation rate for indirect materials costs = 26220/437000= 6% I Home 1 Home 2 Home 3 Total Employee fringe benefits 11850 14400 26100 52350 Indirect materials costs 5760 8700 11760 26220 Total indirect costs 17610 23100 37860 78570 Home 1 Home 2 Home 3 Total direct costs 175000 241000 370000 Total indirect costs 17610 23100 37860 Total cost of each house 192610 264100 407860

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