Budgeting, service company. Ever Clean Company provides gutter cleaning services to residential clients. The company has enjoyed considerable growth in recent years due to a successful marketing campaign and favorable reviews on service-rating Web sites. Ever Clean owner Joanne Clark makes sales calls herself and quotes on jobs based on length of gutter surface. Ever Clean hires college students to drive the company vans to jobs and clean the gutters. A part-time bookkeeper takes care of billing customers and other office tasks.
Joanne Clark estimates that her gutter cleaners will work a total of 1,000 jobs during the year. Each job averages 600 feet of gutter surface and requires 12 direct labor-hours. Clark pays her gutter cleaners $15 per hour, inclusive of taxes and benefits. The following table presents the budgeted overhead costs for 2018:
Variable costs | |
Supplies ($6.50 per DLH) | $ 78,000 |
Fixed costs (to support capacity of 12,000 DLH) | |
Indirect labor | 25,000 |
|
17,000 |
Other | 24,000 |
Total budgeted costs | $144,000 |
- 1. Prepare a direct labor budget in both hours and dollars.
- 2. Calculate the budgeted overhead allocation rate based on the budgeted quantity of the cost drivers.
- 3. Calculate the budgeted total cost of all jobs for the year and the budgeted cost of an average 600-foot gutter-cleaning job.
- 4. Prepare a revenues budget for the year assuming that Ever Clean charges customers $0.60 per square foot.
- 5. Calculate the budgeted operating income.
- 6. What actions can Clark take if sales should decline to 900 jobs annually?
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
HORNGREN COST ACCT NON-MAJORS W/ACCESS
- Friendly Bank is attempting to determine the cost behavior of its small business lending operations. One of the major activities is the application activity. Two possible activity drivers have been mentioned: application hours (number of hours to complete the application) and number of applications. The bank controller has accumulated the following data for the setup activity: Required: 1. Estimate a regression equation with application hours as the activity driver and the only independent variable. If the bank forecasts 2,600 application hours for the next month, what will be the budgeted application cost? 2. Estimate a regression equation with number of applications as the activity driver and the only independent variable. If the bank forecasts 80 applications for the next month, what will be the budgeted application cost? 3. Which of the two regression equations do you think does a better job of predicting application costs? Explain. 4. Run a multiple regression to determine the cost equation using both activity drivers. What are the budgeted application costs for 2,600 application hours and 80 applications?arrow_forwardYou are a management accountant for Time Treasures Company, whose company has recently signed an outsourcing agreement with Spotless. Inc., a janitorial service company. Spotless will provide all of Time Treasures janitorial services, including sweeping floors, hauling trash, washing windows, stocking restrooms, and performing minor repairs. Time Treasures will be billed at an hourly rate based on the type of service performed. The work of common laborers (sweeping, hauling trash) is to be billed at $8 per hour. More skilled (repairs) and more dangerous work (washing outside windows on the 23rd floor) are to be billed at $18 per hour. Supervisory time is to be billed at $20 per hour. Spotless will submit monthly invoices, which will show the number and types of hours for which Time Treasures is being charged. The outsourcing contract is simple and straightforward. A. What are some of the internal control problems you foresee as a result of our sourcing the janitorial service with this contract? B. Explain recommendations to control risk that would you suggest after reviewing the contract.arrow_forwardVentana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventanas income statement for last year is as follows: Ventana wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year. Required: 1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round the percentage to two significant digits.) 2. A customer orders draperies and shades for a remodeling job. The job will have the following costs: What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.) 3. What if Ventana wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round the percentage to two significant digits.) What is the bid price Ventana will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)arrow_forward
- Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?arrow_forwardVarney Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services Department (CCS) costs to profit centers. The following table lists the types of services and cost drivers for each service. The table also includes the budgeted cost and quantity for each service for August. CCS ServiceCategory Cost Drivers Budgeted Cost Budgeted Quantityof Services Help desk Number of calls $50,400 2,800 Network center Number of devices monitored 170,100 2,100 Electronic mail Number of user accounts 151,700 4,100 Smartphone support Number of smartphones issued 115,600 3,400 One of the profit centers for Varney Corporation is the Communication Systems (COMM) sector. Assume the following information for COMM: • COMM has 2,400 employees, of whom 40% are office employees. • All the office employees have been issued a smartphone, and 92% of them have a computer on the network. • Ninety percent of the employees with a…arrow_forwardVarney Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services Department (CCS) costs to profit centers. The following table lists the types of services and cost drivers for each service. The table also includes the budgeted cost and quantity for each service for August. CCS ServiceCategory Cost Drivers Budgeted Cost Budgeted Quantityof Services Help desk Number of calls $70,300 3,700 Network center Number of devices monitored 140,400 1,800 Electronic mail Number of user accounts 148,500 4,500 Smartphone support Number of smartphones issued 87,000 3,000 One of the profit centers for Varney Corporation is the Communication Systems (COMM) sector. Assume the following information for COMM: • COMM has 2,300 employees, of whom 25% are office employees. • All the office employees have been issued a smartphone, and 93% of them have a computer on the network. • Ninety percent of the employees with a…arrow_forward
- Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniorswho live in their own homes within the Jackson County area. (DATA is Available in the picture) The company measures its activity in terms of flights. Customers can buy individual tickets for overflightsor hire an entire plane for an overflight at a discount. Required: Prepare the company Planning Budget by using planning data at 60 Flights. Prepare company flexible budgets by flex data (at 70 Flights) Prepare a complete variance report showing the company’s Activity and Revenue and spending variances for August.arrow_forwardAnalyze Adventure Park’s Staffing Budget Describe and illustrate the use of staffing budgets for nonmanufacturing businesses. Adventure Park is a large theme park. Staffing for the theme park involves many different labor classifications, one of which is the parking lot staff. The parking lot staff collects parking fees, provides directions, and operates trams. The staff size is a function of the number of daily vehicles. Adventure Park has determined from historical experience that a staff member is needed for every 200 vehicles. Adventure Park estimates staff for both school days and non school days. Non school days are higher attendance days than school days. The number of expected vehicles for each day is as follows: School Days Nonschool Days Number of vehicles per day 3,000 8,000 Number of days per year 165 200 Parking fees are $10 per vehicle. Each parking lot employee is paid $110 per day. Determine the annual parking lot staff budget for school…arrow_forwardVarney Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services Department (CCS) costs to profit centers. The following table lists the types of services and cost drivers for each service. The table also includes the budgeted cost and quantity for each service for August. CCS Services Cost Drivers Budgeted Cost Budgeted Quantityof Services Help desk Number of calls $90,000 3,600 Network center Number of devices 120,000 1,500 Electronic mail Number of user accounts 160,000 5,000 Smartphone support Number of smartphones issued 72,000 4,000 One of the profit centers for Varney Corporation is the Communication Systems (COMM) division. Assume the following information for COMM: COMM has 2,500 employees, of whom 20% are office employees. All of the office employees have been issued a smartphone, and 95% of them have a computer on the network. One hundred percent of the employees with a computer also…arrow_forward
- Within a company is a (micro)economy that is monitored by the accounting procedures. In terms of the accounts, the various departments "produce" costs, some of which are internal and some of which are direct costs. This problem shows how an open Leontief model can be used to determine departmental costs. The sales department of an auto dealership charges 10% of its total monthly costs to the service department, and the service department charges 20% of its total monthly costs to the sales department. During a given month, the direct costs are $88,200 for sales and $29,400 for service. Find the total costs (in dollars) of each department. (Round your answers to the nearest whole number.) sales department $ service department $arrow_forwardThe manager of a retail shop is awarded a bonus if his shop stays within the quarterly budget. Often times, the manager will schedule hourly employees less or not purchase inventory until the next quarter in order to make sure the shop stays within budget. Discuss why or (why not) this an ethical issue and who could be impacted by the manager's actions. In addition, how could this impact the performance measurements of the retail shop?arrow_forwardShirrell Blackthorn is the accountant for several pizza restaurants based in a tri-city area. The president of the chain wanted some help with budgeting and cost control, so Shirrell decided to analyze the accounts for the past year. She divided the accounts into four different categories, depending on whether they appeared to be primarily fixed or to vary with one of three different drivers. Food and wage costs appeared to vary with the total sales dollars. Delivery costs varied with the number of miles driven (workers were required to use their own cars and were reimbursed for miles driven). A group of other costs, including purchasing, materials handling, and purchases of kitchen equipment, dishes, and pans, appeared to vary with the number of different product types (e.g., pizza, salad, and lasagna). Shirrell came up with the following monthly averages: Food and wage costs $ 183,000Delivery costs $ 19,250Other costs $ 180Fixed costs $ 235,000Sales revenue $ 640,000Delivery mileage…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,