Question: Job costing, normal and actual costing. Atkinson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2016, Atkinson budgets 2017 assembly-support costs to be $8,800,000 and 2017 direct laborhours to be 220,000. At the end of 2017, Atkinson is comparing the costs of several jobs that were started and completed in 2017.

                                        Laguna Model            Mission Model

Construction period              Feb-June 2017           May-Oct 2017

Direct material costs                $106,550                   $127,450

Direct labor costs                    $ 36,250                    $ 41,130

Direct labor-hours                           970                        1,000

Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labor-hours are worked. The 2017 actual assembly-support costs were $8,400,000, and the actual direct labor-hours were 200,000.

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 Laguna Model and the Mission Model using (a) normal costing and (b) actual costing?

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