Question

Refer to the data in Exercise 5.7.
In Exercise 5.7
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:
Required:
1. Should Irrigation Specialties use process costing or job-order costing? Explain.
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.
3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $54,000, 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? In August?


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  • CreatedSeptember 01, 2015
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