Page 1 of 9 Assignment Chapter 5 Homework eBook Exercise 5.7 Characteristics of
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Page 1 of 9 Assignment Chapter 5 Homework eBook Exercise 5.7 Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Compan homes and businesses throughout the state. Each job is different, for installing the systems. EcoScape estimated the following for r, designs and installs custom lawn and garden irrigation systems for requiring different materials and labor Number of direct labor hours Direct labor cost Overhcad cost 6,720 $67.200 $50,400 During the year, the following actual amounts were exper ienced Number of direct labor hours Direct labor incurred Overhead incurred 6,045 $66495 $50,500 Required: 1. Should EcoScape use process costing or job-order costing? 2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours What is the overhead rate? Round your answer to the nearest cent. per direct labor hour What is the average actual wage rate? S per direct labor hour What is the cost of an installation that takes $3,500 of direct materials and 20 direct labor hours? eBook Exercise 5.8 com/lm/takeAssignment/printUntakenAssignment do?assignmentl. 3/17/2018 http://sjc.cengagenowExplanation / Answer
Answer to Question Numnber 1
Job costing is generally used for unique products with production runs being very small whereas process costing is used for standardized products with large production runs. In case of job costing, each job will be independent and different without having any dependency on the other job. Whereas in case of process costing, each process (except for the first process) will be depedent on its previous process to get its raw material from the previous process.
In the given case, Vince Melders designs and installs custom lawn and garden irrigation systems for homes and businesses. Each job is different and requires different materials and labours for installing the systems. Since each job is different and materails required are different, there is no dependency on the other jobs.
Considering the above facts, Ecospace should use "Job Order Costing" method.
Answer to Question Number 2
Overhead rate = Overhead incurred/Direct Labour Hours = $50,500/6,045 hours = $8.35 per labour hour
Average actual wage rate = Direct Labour Cost incurred/Direct Labour hours = $66,495/6,045 hours = $11 per labour hour
Cost of installation will be,
Direct materials = $3,500
Labour cost (20 hours * $11 per hours) = $220
Overhead Cost (20 hours * $8.35 per hour) = $167
Total Cost = $3,887
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