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 45,300 hours last year, 30,200 on commercial jobs and 15,100 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 $404,580, 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 dollar. 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 a. Revenue a. Direct Labor a. Overhead a. Profit b. Total Overhead L Draft Commercial Cost Driver Number of clients served Equipment hours Area serviced in square yards 604,000 269,720 Recalculate total overhead and profits for commercial and residential services based on these activity bases. Note: Round intermediate calculations to 2 decimal places. Residential Cost $ 47,460 188,000 169,120 $ 404,580 302,000 134,860 Cost Driver Volume Commercial 20 3,000 76,000 Residential 64 2,000 36,000
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 45,300 hours last year, 30,200 on commercial jobs and 15,100 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 $404,580, 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 dollar. 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 a. Revenue a. Direct Labor a. Overhead a. Profit b. Total Overhead L Draft Commercial Cost Driver Number of clients served Equipment hours Area serviced in square yards 604,000 269,720 Recalculate total overhead and profits for commercial and residential services based on these activity bases. Note: Round intermediate calculations to 2 decimal places. Residential Cost $ 47,460 188,000 169,120 $ 404,580 302,000 134,860 Cost Driver Volume Commercial 20 3,000 76,000 Residential 64 2,000 36,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:M Question 2-Chapte
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Activity
Supervision
Equipment depreciation and lease.
Miscellaneous supplies
AREBALLS
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 45,300 hours last year, 30,200 on commercial jobs and 15,100 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.
Total overhead
a. Revenue
a. Direct Labor
a. Overhead
a. Profit
b. Total Overhead
Draft
Required:
a. If overhead for the year was $404,580, 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 dollar.
b. Overhead consists of costs of supervision, equipment used (including vehicle rental), and supplies used, which can be traced as
follows:
Commercial
100
8:
604,000
269,720
McGraw Hill Connect
Recalculate total overhead and profits for commercial and residential services based on these activity bases.
Note: Round intermediate calculations to 2 decimal places.
Piper
Office DEPOT.
Cost Driver
Number of clients served
Equipment hours
Area serviced in square yards
Residential
302,000
134,860
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Cost
$ 47,460
188,000
169,120
$ 404,580
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Cost Driver Volume
Commercial
20
3,000
76,000
Residential
64
2,000
36,000
S
DE
Expert Solution
Step 1: Define Activity Based Costing
Activity-based costing assigns the cost of each activity to all the products and services in relation to actual consumption done by the companies or organization from indirect cost rather than direct cost in conventional costing.
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