Khadka Manufacturing manufactures work benches for local and domestic markets. Materials and labour used in the manufacturing process are directly allocated to different jobs as the company uses a job costing system. Costs incurred in the manufacturing support department are indirect in nature and allocated to different jobs on the basis of direct labor-hours. Khadka estimates 2019 manufacturing-support costs to be $1,700,000 and 2019 direct labor-hours to be 50,000.
At the end of 2019, Khadka collects the cost-related data of different jobs that were started and completed in 2019 for comparison. They are as follows:
|Iron benches||Wooden benches|
|Production period||Jan-May 2019||May-Sept 2019|
|Direct material costs||$39,145||$47,325|
|Direct labour costs||$12,723||$16,376|
Direct materials and direct labour are paid for on a contractual basis. The costs of each are known when direct materials are used or when direct labour hours are worked. The 2019 actual manufacturing-support costs were $1,785,000 and the actual direct labour-hours were 51,000.
- Compute the budgeted indirect-cost rate and the actual indirect-cost rate.
- What are the job costs of the Iron benches and the Wooden benches using normal costing and actual costing?
- Why might the managers of Khadka Manufacturing prefer to use normal costing?
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