Elite Lawn & Plowing (EL&P) Is a lawn and snow plowing service with both residential and commercial clients. The owner belleves 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, 29,000 on residential jobs and 13,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplles. 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 $38 per hour for residential work, but only $27 per hour for commercial work. Required: a. If overhead for the year was $125,280, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round Intermedlate 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 Cost Driver Cost Commercial Residential Activity Traveling Using equipment Using supplies Number of clients served Equipment hours Area serviced in square yards $ 14,820 32,760 77, 700 12 45 3, 300 150, 000 1,900 60, 000 Total overhead $125, 280 Recalculate profits for commercial and residential services based on these activity bases. (Do not round Intermedlate calculations. Round final answers to the nearest whole dollar.)
Elite Lawn & Plowing (EL&P) Is a lawn and snow plowing service with both residential and commercial clients. The owner belleves 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, 29,000 on residential jobs and 13,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplles. 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 $38 per hour for residential work, but only $27 per hour for commercial work. Required: a. If overhead for the year was $125,280, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round Intermedlate 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 Cost Driver Cost Commercial Residential Activity Traveling Using equipment Using supplies Number of clients served Equipment hours Area serviced in square yards $ 14,820 32,760 77, 700 12 45 3, 300 150, 000 1,900 60, 000 Total overhead $125, 280 Recalculate profits for commercial and residential services based on these activity bases. (Do not round Intermedlate calculations. Round final answers to the nearest whole dollar.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3, 4, 5)
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, 29,000 on residentlal jobs and 13,000 on commercial jobs. Wages were
$15 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 competitlon for commercial accounts, EL&P
can charge $38 per hour for residential work, but only $27 per hour for commercial work.
Required:
a. If overhead for the year was $125,280, what were the profits of the residential and commercial services using labor-hours as the
allocation base? (Do not round Intermedlate calculatlons. 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
12
Cost Driver
Cost
Residential
Activity
Traveling
Using equipment
Using supplies
Total overhead
Number of clients served
Equipment hours
Area serviced in square yards
45
$14,820
32,760
77,700
3,300
150, 000
1,900
60,000
$125, 280
Recalculate profits for commercial and residential services based on these activity bases. (Do not round Intermedlate calculations.
Round final answers to the nearest whole dollar.)
Residential
Commercial
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