Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believe the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages w $14 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 can charge $36 per hour for residential work, but only $25 per hour for commercial work. Required: a. If overhead for the year was $115,980, what were the profits of the residential and commercial services using labor-hours as th 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 Commercial Residential Cost Driver Activity Traveling Using equipment Using supplies Total overhead Number of clients served Equipment hours Area serviced in square yards Cost $ 14,580 38,400 63,000 $115,980 14 40 3,800 110,000 2,200 70,000
Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believe the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages w $14 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 can charge $36 per hour for residential work, but only $25 per hour for commercial work. Required: a. If overhead for the year was $115,980, what were the profits of the residential and commercial services using labor-hours as th 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 Commercial Residential Cost Driver Activity Traveling Using equipment Using supplies Total overhead Number of clients served Equipment hours Area serviced in square yards Cost $ 14,580 38,400 63,000 $115,980 14 40 3,800 110,000 2,200 70,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
Transcribed Image Text: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 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages were
$14 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 $25 per hour for commercial work.
Required:
a. If overhead for the year was $115,980, 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
Commercial Residential
14
Activity
Traveling
Using equipment
Using supplies
Cost Driver
Number of clients served
Equipment hours
Area serviced in square yards
Cost
$ 14,580
38,400
63,000
$115,980
40
3,800
110,000
2,200
70,000
Total overhead
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
a.
Revenue
Direct Labor
Overhead
Profit
b.
Total Overhead
Profit
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