Question

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 snow thrower 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 snow thrower machine to clear sidewalks. On commercial jobs, the drivers spend most of their time plowing. Manzeck allocates overhead based on labor hours. Total estimated overhead costs for the year are $42,000. Total estimated labor hours are 1,500 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.

Activity Cost Pools		Cost Drivers		Estimated Overhead				Estimated Use of Cost Drivers per Activity
Plowing		Square yards of surface plowed			$38,000				200,000
Snowthrowing		Linear feet of sidewalk cleared			$4,000				50,000

Determine the predetermined overhead rate under traditional costing. (Round answer to 2 decimal places, e.g. 12.25.)

Predetermined overhead rate

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Determine the amount of overhead allocated to the average residential job using traditional costing based on labor hours. (Round answer to 2 decimal places, e.g. 12.25.)

Amount of overhead allocated

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Determine the activity-based overhead rates for each cost pool. (Round answers to 2 decimal places, e.g. 12.25.)

		Activity Based Overhead Rate
Plowing		$	per square yard
Snowthrowing		$	per linear foot

  

  

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. (Round answer to 2 decimal places, e.g. 12.50.)

Amount of overhead allocated

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Answer 1

1. Predetermined overhead rate = Total estimated overhead costs / Total estimated labor hours

Total estimated overhead costs = $42,000

Total estimated labor hours = 1500 hours

Predetermined overhead rate = $42,000 / 1,500 hours = $28 Per hour

2. Amount of overhead allocated = Average residential property labor time * Predetermined overhead rate

Predetermined overhead rate = $28 per hour

Average residential property labor time = 0.5 hour

Amount of overhead allocated = 0.5 hours * $28 = $14 per residential property

3.

Plowing

Overhead cost per square yard = Total estimated overhead for activity / Number of square yards

Total estimated overhead for activity = $38,000

Number of square yards = 200,000

Overhead cost per square yard = $38,000 / 200,000 = 0.19 per square yard

Snowthrowing

Overhead cost per Linear feet = Total estimated overhead for activity / Number of Linear feet

Total estimated overhead activity = $4,000

Number of Linear feet = 50,000

Overhead cost per Linear feet = $4,000 / 50,000 = 0.08 per Linear feet

4. Amount of overhead allocated = (Overhead cost per square yard * Number of square yards) + (Overhead cost per Linear foot * Number of linear feet)

Amount of overhead allocated = (0.19* 20) + (0.08 * 60)

Amount of overhead allocated = 3.80 + 4.80 = 8.60 per residential property