Solution to part 3.
|Actual costing (a)||Normal Costing (b)||Variation of normal costing (c)|
|Direct costs||$ 53 x 185 = $9,805||$53 x 185 = $9,805||$60 x 185 = $11,100|
|Indirect costs||$48 x 185 = $8,880||$45 x 185 = $8,325||$45 x 185 = $ 8,325|
|Total job costs||$ 18,685||$18,130||$ 19,425|
We should keep in mind that budgeted labor hours is not used in job costing. We have to use the actual labor hours spent on the job to allocate costs in each of the three costing systems ( 185 hours). However the use of budgeted hours might be at the beginning of the audit to provide a standard time to client.
The total job costs in actual costing of $ 18,685 exceeds the total job costs in normal costing of $ 18,130 because the actual indirect cost rate ($48) in actual costing is more than budgeted indirect cost rate ($45) used in normal costing.The total job costs in normal costing of 18,130 is less than the total job costs in variation of normal costing of 19,425 because the actual direct cost rate ($ 53) is less that budgeted direct cost rate of ($ 60).
Budgeted direct cost rate for professional labor = $ 960,000 / 16,000 = $ 60 per professional labor hour
Budgeted indirect cost rate for professional labor = $ 720,000 / 16,000 = $ 45 per professional labor hour
Actual Indirect cost rate = $ 744,000 / 15,500 = $ 48 per professional labor hour.