Jeff Boyer, owner of Rainking of Exercise 5-1, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Jeff met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Jeff created a new company, Waterpro, to handle the subdivision business. In its first three months in business, Waterpro experienced the following:

Required:
1. Should Waterpro use process costing or job-order costing? Explain.
2. If Waterpro uses an actual costing system, what is the cost of a single system installed in June? In July? In August?
3. Now assume that Waterpro uses a normal costing system. Estimated overhead for the year is $60,000, and estimated production is 600 watering systems. What is the predetermined overhead rate per system? What is the cost of a single system installed in June? In July? InAugust?

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Juneuly gaut August Number of systems installed Direct materials used Direct labor incurred Overhead 100 S5,000 $10,000 20,000 $21,000 $8,400 25 50 S5,250 I $15,000 $10,500 $6,000