Question

# Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and...

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.

Required:

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 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 \$ 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 Total overhead \$ 101,220

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.)

Commercial                          Residential

Revenue

Direct Labor

Profit

Profit

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours = \$101,220 / 33,000 = \$3.06727 per labor hour

 Computation of Profits Particulars Commercial Residential Revenue (11,000*\$26) || (22,000*\$34) \$286,000 \$748,000 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 Profit \$76,260 \$328,520

Solution b:

 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 Total \$101,220 \$63,360 \$37,860
 Computation of Profits Particulars Commercial Residential Revenue \$286,000 \$748,000 Direct labor \$176,000 \$352,000 Overhead \$63,360 \$37,860 Profit \$46,640 \$358,140

hope you got the answer, please comment for any clarification

Thankyou and all the best for future

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