Exercise 9-43 (Algo) Activity-Based Costing in a Service Environment (LO 9-3, 4, 5) Heidt Cleaning Services (HCS) is a local custodial service company serving both the residential and commercial markets. The owner is considering dropping the commercial clients because that business seems only marginally profitable. Twenty-five employees worked a total of 44,100 hours last year, 29,400 on commercial jobs and 14,700 on residential jobs. Wages were $20 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. Given current economic conditions and competition, HCS bills residential clients $40 per hour and commercial clients $30 per hour. Required: a. If overhead for the year was $394,260, what were the profits of the residential and commercial services using labor-hours as the allocation base? Note: Do not round intermediate calculations. Round final answers to the nearest whole ditar. b. Overhead consists of costs of supervision, equipment used (including vehicle rental), and supplies used, which can be traced as follows: Activity Supervision Equipment depreciation and lease Miscellaneous supplies Total overhead Cost Driver Number of clients served Equipment hours Area serviced in square yards Cost $ 46,620 183,000 164,640 $ 394,268 Cost Driver volume Commercial Residential 20 64 2,000 3,000 76,000 36,000 Recalculate total overhead and profits for commercial and residential services based on these activity bases Note: Round intermediate calculations to 2 decimal places.

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Process Costing

Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.  

Job Costing

Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.

ABC Costing

Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.