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: 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. Overhead consists of costs of supervision, equipment used (including vehicle rental), and supplies used, which can be traced as follows: Activity Cost Driver Cost Cost Driver Volume Commercial Residential Supervision Number of clients served $ 47,460 20 64 Equipment depreciation and lease Equipment hours 188,000 3,000 2,000 Miscellaneous supplies Area serviced in square yards 169,120 76,000 36,000 Total overhead $ 404,580 Recalculate total overhead and profits for commercial and residential services based on these activity bases. Note: Round intermediate calculations to 2 decimal places.
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
Required:
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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.
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Overhead consists of costs of supervision, equipment used (including vehicle rental), and supplies used, which can be traced as follows:
Activity Cost Driver Cost Cost Driver Volume Commercial Residential Supervision Number of clients served $ 47,460 20 64 Equipment depreciation and leaseEquipment hours 188,000 3,000 2,000 Miscellaneous supplies Area serviced in square yards 169,120 76,000 36,000 Total overhead $ 404,580 Recalculate total overhead and profits for commercial and residential services based on these activity bases.
Note: Round intermediate calculations to 2 decimal places.
Commercial Residential a. Revenue $906,000 $604,000 a. Direct Labor 604,000 302,000 a. Overhead 269,720 134,860 a. Profit ? $167,140 b. Total Overhead ? ? b. Profit ? ?
ABC costing, or activity-based costing, is a cost accounting method that allocates indirect costs to products or services based on the activities required to produce them. ABC Costing recognizes that some activities consume more resources than others, and therefore, have a greater impact on the cost of the final product or service.
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