Green garden care Inc is a lawn and garden care service and orginaly specilized
ID: 2372759 • Letter: G
Question
Green garden care Inc is a lawn and garden care service and orginaly specilized in serving small residential clients but recently started contracting for work on office building ground the owner belives that commercial lawn care is more profitable he is cosidering dropping resideinail services together
employeed worked a total of 20000 hours last year, 1300 on residential job and 7000 on commercial jobs, wages and benifits amounted to $ 10 per hour for all work done material are included in overhead, all overhead is allocated on the basis of labor hours worked which also is the basis of customer charges the company can charge $ 22 per hour for resideintial work but only $19 per hour forcommercial work
A of overhed forthe year was $ 124000 what were the profit of commercial and residential services using labor hours as the allocation base
B overhead consist od cost of transportation, equipments use and supplies which can be traced to the following activities
Activity cost driver based cost commercial residential
transportation Nu of client services $16000 15 45
equipment use equipment hours 36000 4000 2000
supplies area serviced in square yard 72000 130000 70000
total overhead $ 124000
calculate profit for commercial and residential sevices based on cost cost driver base is the total overhead cost affected by choice of traditional or ABC methods for assigneing overhead costs toproducts
what recommendation do you have for managemnet regarding the profiablity of these two types of services
Explanation / Answer
=========================================================================================================================================================================================== a) If overhead for the year was $102,400, what were the profits of commercial and residential services using labour-hours as the allocation base?(4 marks) ============================================================================================================================= OH rate: $102,400/20,000 hours) = $15.12 per hour ============================================================================================================================= Commercial Residential Revenue $133,000 $286,000 ============================================================================================================================= Wages 70,000 130,000 ============================================================================================================================= Overhead 35,840 66,560 ============================================================================================================================= Total $ 27,160 $ 89,440 ============================================================================================================================= b) Recalculate the profits for commercial and residential services based using activity-based costing (ABC) as the allocation base(s) for allocation. (9 marks) Solution: ============================================================================================================================= OH rates: Transportation $61,600/(15+45) clients = $1.027.70 per client served ============================================================================================================================= Equipment use $3,600/(4000+2000) hours = $0.60 per hour ============================================================================================================================= Supplies $37,200/(130,000+70,000) sq yards = $0.186 per sq yd ============================================================================================================================= Commercial Residential ============================================================================================================================= Revenue $133,000 $286,000 ============================================================================================================================= Wages 70,000 130,000 ============================================================================================================================= Overhead Transportation 15,400 46,201.50 ============================================================================================================================= Equipment use 2,400 1,200 ============================================================================================================================= Supplies 24,180 13,020 ============================================================================================================================= Total $ 21,019.50 $ 95,578.50 ============================================================================================================================= Is the total overhead cost affected by the choice of traditional or ABC methods for assigning overhead costs to products? (4 marks) =============================================================================================================================
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