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 33,000 hours last year, 22,000 on residential jobs and 11,000 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 $34 per hour for residential work, but only $26 per hour for commercial work.
a. If overhead for the year was $101,220, what
were the profits of the residential and commercial services using
labor-hours as the allocation base? (Do not round
intermediate calculations. Round final answers to the nearest whole
b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows.
Cost Driver Volume
|Traveling||Number of clients served||$||16,120||17||45|
|Using equipment||Equipment hours||34,100||3,700||1,800|
|Using supplies||Area serviced in square yards||51,000||120,000||50,000|
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.)
Predetermined overhead rate = Estimated overhead / Estimated direct labor hours = $101,220 / 33,000 = $3.06727 per labor hour
|Computation of Profits|
|Revenue (11,000*$26) || (22,000*$34)||$286,000||
|Direct labor (11,000*$16) || (22,000*$16)||$176,000||$352,000|
|Overhead (11,000*$3.06727) || (22,000*$3.06727)||$33,740||$67,480|
|Allocation of Overhead using ABC|
|Activity||Estimated Overhead Cost||Activity Base||Usage of Activity Base||Activity Rate||Commercial||Residential|
|Usage||Allocated Costs||Usage||Allocated Costs|
|Travelling||$16,120||Nos of clients served||62||$260||17||$4,420||45||$11,700|
|Using Equipment||$34,100||Equipment hours||5500||$6.20||3700||$22,940||1800||$11,160|
|Using Supplies||$51,000||Area serviced in square yards||170000||$0.30||120000||$36,000||50000||$15,000|
|Computation of Profits|
hope you got the answer, please comment for any clarification
Thankyou and all the best for future
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