Question

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 42,000 hours last year, 26,000 on residential jobs and 16,000 on commercial jobs. Wages were $16 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 $36 per hour for residential work, but only $27 per hour for commercial work. Required: a. If overhead for the year was $112,350, what were the profits of the residential and the commercial services using labor-hours as the allocation base? (Do not round intermediate calculations.) 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 $ 14,250 17 40 Using equipment Equipment hours 34,100 3,200 2,300 Using supplies Area serviced in square yards 64,000 150,000 50,000 Total overhead $ 112,350 Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations.)

Answer 1