Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year:
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
Required:
1. Should EcoScape use process costing or job-order costing? Explain.
2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours, what is the overhead rate? What is the average actual wage rate? What is the cost of an installation that takes $3,500 of direct materials and 20 direct labor hours?
3. Explain why EcoScape would have difficulty using an actual costing system.