Chapter 4, Problem 4.17E

Manzeck Company operates a snow-removal service. The company owns five trucks, each of which has a snow plow in the front to plow driveways and a snowthrower in the back to clear sidewalks. Because plowing snow is very tough on trucks, the company incurs significant maintenance costs. Truck depreciation and maintenance represents a significant portion of the company's overhead. The company removes snow at residential locations, in which case the drivers spend the bulk of their time walking behind the snowthrower machine to clear sidewalks. On commercial jobs, the drivers spend most of their time plowing. Manzeck allocates overhead based on labor hours. Total overhead costs for the year are $42,000. Total labor hours are l,500 hours. The average residential property requires 0.5 hours of labor, while the average commercial property requires 2.5 hours of labor. The following additional information is available.

Instructions

(a) Determine the predetermined overhead rate under traditional costing.

(b) Determine the amount of overhead allocated to the average residential job using traditional costing based on labor hours.

(c) Determine the activity-based overhead rates for each cost pool.

(d) Determine the amount of overhead allocated to the average residential job using activity-based costing. Assume that the average residential job has 20 square yards of plowing and 60 linear feet of snowthrowing.

(e) Discuss your findings from parts (b) and (d).