Firefly Lawn Mowing and Plowing Inc. services both residential and commercial clients. Management believes that the...

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Firefly Lawn Mowing and Plowing Inc. services both residential and commercial clients. Management believes that the commercial sector has more growth opportunities and is considering dropping the residential services. Twenty employees worked a total of 22,000 hours last year, 13,000 of which was on the residential jobs. Wages were $30 an hour and any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor hours worked which is also the basis for charging customers. Because of increased competitions for commercial accounts, Elite can charge $60 per hour for residential work but only $40 per hour for commercial work. Required: a) If overhead for the year was $242,000, what were the profits of the residential and commercial services using labor hours as the allocation base? b) Overhead consists of costs of travelling to the site, using equipment (including vehicle rental) and using supplies, which can be traced as follows: Activity Cost Driver Cost Commercial Cost Driver Volume Residential Travelling Number of clients served $32,000 24 76 Using equipment Equipment tours 60,000 1,575 1,425 Using supplies Areas service in square yard 150,000 60,000 40,000 Total overhead $242,000 Required: Recalculate profits for of the residential and commercial services based on these activity bases. Firefly Lawn Mowing and Plowing Inc. services both residential and commercial clients. Management believes that the commercial sector has more growth opportunities and is considering dropping the residential services. Twenty employees worked a total of 22,000 hours last year, 13,000 of which was on the residential jobs. Wages were $30 an hour and any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor hours worked which is also the basis for charging customers. Because of increased competitions for commercial accounts, Elite can charge $60 per hour for residential work but only $40 per hour for commercial work. Required: a) If overhead for the year was $242,000, what were the profits of the residential and commercial services using labor hours as the allocation base? b) Overhead consists of costs of travelling to the site, using equipment (including vehicle rental) and using supplies, which can be traced as follows: Activity Cost Driver Cost Commercial Cost Driver Volume Residential Travelling Number of clients served $32,000 24 76 Using equipment Equipment tours 60,000 1,575 1,425 Using supplies Areas service in square yard 150,000 60,000 40,000 Total overhead $242,000 Required: Recalculate profits for of the residential and commercial services based on these activity bases.

Answer rating: 100% (QA)

a To calculate the profits of the residential and commercial services using labor hours as the allocation base we need to consider the revenue generated and deduct the costs associated with each servi... View the full answer