LawnCare USA provides lawn care and landscaping services to commercial clients. LawnCare USA uses activity-based costing to bid on jobs and to evaluate their profitability. LawnCare USA reports the following annual costs:
Wages and salaries ....... $ 360,000
Depreciation ........... 72,000
Supplies ............ 120,000
Other overhead ......... 288,000
Total overhead costs ...... $ 840,000
John Gilroy, controller of LawnCare USA, has established four activity cost pools:

Gilroy estimates that LawnCare USA’s costs are distributed to the activity-cost pools as follows:

Sunset Office Park, a new development in a nearby community, has contacted LawnCare USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 250 direct labor-hours annually. LawnCare USA has a policy of pricing estimates at 150% of cost.

1. Allocate LawnCare USA’s costs to the activity-cost pools and determine the activity rate for each pool.
2. Estimate total cost for the Sunset Office Park job.
3. How much should LawnCare USA bid to perform the job?
4. Sunset Office Park asks LawnCare USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for LawnCare USA to provide a 2-yearestimate?

  • CreatedMay 14, 2014
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