Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $32 per hour for residential work, but only $26 per hour for commercial work. Required: a. If overhead for the year was $125,550, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round intermediate calculations. Round final answers to the nearest whole dollar.) b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows. Cost Driver Volume Activity Cost Driver Cost Commercial Residential Traveling Number of clients served $ 15,000 15 45 Using equipment Equipment hours 37,050 3,800 1,900 Using supplies Area serviced in square yards 73,500 120,000 90,000 Total overhead $ 125,550 Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations. Round final answers to the nearest whole dollar.)
Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3, 4, 5)
Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service.
Twenty employees worked a total of 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $32 per hour for residential work, but only $26 per hour for commercial work.
Required:
a. If overhead for the year was $125,550, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round intermediate calculations. Round final answers to the nearest whole dollar.)
b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows.
|
Cost Driver Volume |
||||||||||
| Activity | Cost Driver | Cost | Commercial | Residential | ||||||
| Traveling | Number of clients served | $ | 15,000 | 15 | 45 | |||||
| Using equipment | Equipment hours | 37,050 | 3,800 | 1,900 | ||||||
| Using supplies | Area serviced in square yards | 73,500 | 120,000 | 90,000 | ||||||
| Total overhead | $ | 125,550 | ||||||||
Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations. Round final answers to the nearest whole dollar.)
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