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?

Transcribed Image Text:

June July Number of systems installed Direct materials used Direct labor incurred Overhead 60 $18,000 $12,000 S10,900 August 120 $36,000 S24,000 S14,500 80 S24,000 $16,000 $12,340