Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs customlawn and garden irrigation systems for homes and businessesthroughout the state. Each job is different, requiring differentmaterials and labor for installing the systems. EcoScape estimatedthe following for the year:
Number of direct labor hours 6,720 Direct labor cost $67,200 Overhead cost $50,400
During the year, the following actual amounts wereexperienced:
Number of direct labor hours 6,045 Direct labor incurred $66,495 Overhead incurred $50,500
Vince Melders, owner of EcoScape, noticed that the wateringsystems for many houses in a local subdivision had the same layoutand required virtually identical amounts of prime cost. Vince metwith the subdivision builders and offered to install a basicwatering system in each house. The idea was acceptedenthusiastically, so Vince created a new company, IrrigationSpecialties, to handle the subdivision business. In its first threemonths in business, Irrigation Specialties experienced thefollowing:
June July August Number of systems installed 48 68 88 Direct materials used $13,248 $18,768 $24,288 Direct labor incurred $8,832 $12,512 $16,192 Overhead $7,948.80 $8,758.40 $9,715.20
Required:
1. Should Irrigation Specialties use processcosting or job-order costing?
Job-order costing
2. If Irrigation Specialties uses an actualcosting system, what is the cost of a single system installed inJune? In July? In August? Round your answers to the nearestdollar.
June $ per system July $ per system August $ per system
3. Now assume that Irrigation Specialties usesa normal costing system. Estimated overhead for the year is$45,900, and estimated production is 540 watering systems. What isthe predetermined overhead rate per system?
$ per system installed
What is the cost of a single system installed in June? In July?In August?
June $ per system July $ per system August $ per system
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs customlawn and garden irrigation systems for homes and businessesthroughout the state. Each job is different, requiring differentmaterials and labor for installing the systems. EcoScape estimatedthe following for the year:
| Number of direct labor hours | 6,720 |
| Direct labor cost | $67,200 |
| Overhead cost | $50,400 |
During the year, the following actual amounts wereexperienced:
| Number of direct labor hours | 6,045 |
| Direct labor incurred | $66,495 |
| Overhead incurred | $50,500 |
Vince Melders, owner of EcoScape, noticed that the wateringsystems for many houses in a local subdivision had the same layoutand required virtually identical amounts of prime cost. Vince metwith the subdivision builders and offered to install a basicwatering system in each house. The idea was acceptedenthusiastically, so Vince created a new company, IrrigationSpecialties, to handle the subdivision business. In its first threemonths in business, Irrigation Specialties experienced thefollowing:
| June | July | August | |
| Number of systems installed | 48 | 68 | 88 |
| Direct materials used | $13,248 | $18,768 | $24,288 |
| Direct labor incurred | $8,832 | $12,512 | $16,192 |
| Overhead | $7,948.80 | $8,758.40 | $9,715.20 |
Required:
1. Should Irrigation Specialties use processcosting or job-order costing?
Job-order costing
2. If Irrigation Specialties uses an actualcosting system, what is the cost of a single system installed inJune? In July? In August? Round your answers to the nearestdollar.
| June | $ per system |
| July | $ per system |
| August | $ per system |
3. Now assume that Irrigation Specialties usesa normal costing system. Estimated overhead for the year is$45,900, and estimated production is 540 watering systems. What isthe predetermined overhead rate per system?
$ per system installed
What is the cost of a single system installed in June? In July?In August?
| June | $ per system |
| July | $ per system |
| August | $ per system |
