8. 10.00 points Elite Lawn & Plowing (EL&P;) is a lawn and snow plowing service

Question

8. 10.00 points 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 37,000 hours last year, 26,000 on residential jobs and 11,000 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 competition for commercial accounts, EL&P; can charge $33 per hour for residential work, but only $26 per hour for commercial work. Required: a. If overhead for the year was $138,430, what were the profits of the residential and the commercial services using labor-hours as the allocation base? (Do not round intermediate calculations.) Profit Residential 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 Activity Traveling Using equipment Using supplies Total overhead Cost Driver Number of clients served Equipment hours Area serviced in square yards Cost $15,250 38,080 85,100 $ 138,430 16 3,200 160,000 45 2,400 70,000 Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations.) Profit Residential

Explanation / Answer

Requirement a Particulars Commercial Residential Hours Worked 11,000 26,000 Charge per hour 26 33 Revenue from services      2,86,000.00    8,58,000.00 (11000 X26) (26000 X 33) Wages      1,65,000.00    3,90,000.00 (11000 X15) (26000 X 15) Overheads 41154.86 97275.14 (138430/37000 X11000) (138430/37000 X26000) Profit          79,845.14    3,70,724.86 Requirement b Cost driver Volume Activity Cost driver Cost Commerical Residential Total Activity Rate Travelling Number of clients served      15,250 16 45 61 250 Using Equipment Equipment hours      38,080 3200 2400 5600 6.80 Using Supplies Area serviced in square yards      85,100 160000 70000 230000 0.37 Total Overhead 1,38,430 Particulars Commercial Residential Hours Worked 11000 26000 Charge per hour 26 33 Revenue from services      2,86,000.00    8,58,000.00 (11000 X26) (26000 X 33) Wages      1,65,000.00    3,90,000.00 (11000 X15) (26000 X 15) Overheads Travelling            4,000.00       11,250.00 (16X250) (45X 250) Using Equipment          21,760.00       16,320.00 (3200X6.80) (2400X6.80) Using Supplies 59200.00 25900.00 (160000X0.37) (70000X0.37) Total Overheads          84,960.00       53,470.00 Profit          36,040.00    4,14,530.00

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