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In: Accounting
Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn...
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the 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 were experienced:
| Number of direct labor hours | 6,045 |
| Direct labor incurred | $66,495 |
| Overhead incurred | $50,500 |
Vince Melders, owner of EcoScape, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Vince met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Vince created a new company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following:
| June | July | August | |
| Number of systems installed | 68 | 88 | 108 |
| Direct materials used | $17,952 | $23,232 | $28,512 |
| Direct labor incurred | $11,968 | $15,488 | $19,008 |
| Overhead | $10,771.20 | $10,841.60 | $11,404.80 |
Required:
1. Should Irrigation Specialties use process costing or job-order costing?
- Select your answer -Process costingJob-order costingItem 1
2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system installed in June? In July? In August? Round your answers to the nearest dollar.
| June | $ per system |
| July | $ per system |
| August | $ per system |
3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $56,000, and estimated production is 700 watering systems. What is the 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 |
Solutions
Expert Solution
1. Job order Costing. Because The Company is using Materials and Labor at different rates to install systems. Thus Job Order Costing is Suggested.
2.
3. Predetermined overhead rate per system = Estimated OH / System
Predetermined overhead rate per system = 56000 / 700
Predetermined overhead rate per system = $80 Per System
ekkarill92 answered 1 year agoRelated Solutions
Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn...
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom
lawn and garden irrigation systems for homes and businesses
throughout the state. Each job is different, requiring different
materials and labor for installing the systems. EcoScape estimated
the 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 were
experienced:
Number of direct labor hours
6,045
Direct labor incurred
$66,495
Overhead...
Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn...
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom
lawn and garden irrigation systems for homes and businesses
throughout the state. Each job is different, requiring different
materials and labor for installing the systems. EcoScape estimated
the 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 were
experienced:
Number of direct labor hours
6,045
Direct labor incurred
$66,495
Overhead...
Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn...
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom
lawn and garden irrigation systems for homes and businesses
throughout the state. Each job is different, requiring different
materials and labor for installing the systems. EcoScape estimated
the 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 were
experienced:
Number of direct labor hours
6,045
Direct labor incurred
$66,495
Overhead...
Exercise 5.7 (Algorithmic) Characteristics of Production Process, Cost Measurement Vince Melders, of EcoScape Company, designs and...
Exercise 5.7 (Algorithmic)
Characteristics of Production Process, Cost Measurement
Vince Melders, of EcoScape Company, designs and installs custom
lawn and garden irrigation systems for homes and businesses
throughout the state. Each job is different, requiring different
materials and labor for installing the systems. EcoScape estimated
the following for the year:
Number of direct labor hours
6,710
Direct labor cost
$87,230
Overhead cost
$50,325
During the year, the following actual amounts were
experienced:
Number of direct labor hours
6,030
Direct labor...
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
Amount
Percent
of Sales
Sales
$
145,000
100%
Variable
expenses
58,000
40%
Contribution
margin
87,000
60%
Fixed expenses
15,000
Net operating
income
$
72,000
Required:
1.
Compute the company’s degree of operating leverage.
(Round your answer to 2 decimal places.)
2.
Using the degree of operating leverage, estimate the impact on
net operating income of a...
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
Amount
Percent
of Sales
Sales
$
133,000
100%
Variable expenses
53,200
40%
Contribution margin
79,800
60%
Fixed expenses
16,000
Net operating income
$
63,800
Construct a new contribution format income statement for the
company assuming a 24% increase in sales.
Engberg Company
Contribution Income Statement
Total
Sales
$
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
Amount
Percent of Sales
Sales
$
141,000
100
%
Variable expenses
56,400
40
%
Contribution margin
84,600
60
%
Fixed expenses
24,000
Net operating income
$
60,600
Required:
1. What is the company’s degree of operating leverage?
2. Using the degree of operating leverage, estimate the impact
on net operating income of a 26% increase in sales.
3. Construct a new contribution...
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
1. What is the company’s degree of operating leverage?
2. Using the degree of operating leverage, estimate the impact
on net operating income of a 15% increase in sales.
3. Construct a new contribution format income statement for the
company assuming a 15% increase in sales.
Amount
Percent of Sales
Sales
$
144,000
100
%
Variable expenses
57,600
40
%
Contribution margin...
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement
follows:
Amount
Percent of
Sales
Sales
$
80,000
100
%
Variable expenses
32,000
40
%
Contribution margin
48,000
60
%
Fixed expenses
38,000
Net operating income
$
10,000
Construct a new contribution format income statement for the
company assuming a 5% increase in sales.
Engberg Company
Contribution Income Statement
Amount
Percent of Sales
%
%
0
0
%
$0
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income...
Engberg Company installs lawn sod in home yards. The company’s
most recent monthly contribution format income statement follows:
Amount Percent of Sales Sales $ 123,000 100 % Variable expenses
49,200 40 % Contribution margin 73,800 60 % Fixed expenses 19,000
Net operating income $ 54,800 Required: 1. What is the company’s
degree of operating leverage? 2. Using the degree of operating
leverage, estimate the impact on net operating income of a 12%
increase in sales. 3. Construct a new contribution...
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