QUESTION 3  Job Costing

JC Wood Ltd builds holiday ‘glamping’ cabins for tourist resorts. It uses a job-costing system with two direct-cost categories (direct materials and direct labour) and two indirect-cost pools (building support and logistics). Direct labour-hours is the cost driver for building-support costs and direct materials costs is the cost driver for logistics. In December 2019, JC Wood Ltd budgets 2020 building-support costs to be $8 400 000, and direct labour-hours to be 200 000. At the end of 2020, management is comparing the costs of several jobs that were started and completed in 2020:

Direct materials and direct labour are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labour-hours are worked. The 2020 actual building-support costs were $8 460 000, the actual direct labour-hours were 180 000 and actual direct materials costs were $82 500 000.

Required

1. Calculate: (a) the budgeted cost-driver rate and (b) the actual cost-driver rate. Explain the difference between them.

2. Calculate the job costs of the Brigadoon cabin and the Bellevue cabin using: (a) normal costing and (b) actual costing.

3. Explain why managers might prefer normal costing over actual costing.