Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 46,000 hours last year, 28,000 on residential jobs and 18,000 on commercial jobs. Wages were $14 per hour for all work done. 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 customer charges. Because of increased competition for commercial accounts, EL&P can charge $37 per hour for residential work, but only $26 per hour for commercial work. Required: a. If overhead for the year was $132,600, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round intermediate calculations. Round final answers to the nearest whole dollar.) b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows. Activity Traveling Using equipment Using supplies Total overhead Cost Driver Number of clients served Equipment hours Area serviced in square yards Cost $ 15,600 37,200 79,800 $132,600 Cost Driver Volume Commercial 15 3,700 130,000 Residential 45 2,300 80,000 Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations. Round final answers to the nearest whole dollar.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that
the commercial sector has more growth opportunities and is considering dropping the residential service.
Twenty employees worked a total of 46,000 hours last year, 28,000 on residential jobs and 18,000 on commercial jobs. Wages were
$14 per hour for all work done. 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 customer charges. Because of increased competition for commercial accounts, EL&P
can charge $37 per hour for residential work, but only $26 per hour for commercial work.
Required:
a. If overhead for the year was $132,600, what were the profits of the residential and commercial services using labor-hours as the
allocation base? (Do not round intermediate calculations. Round final answers to the nearest whole dollar.)
b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be
traced as follows.
Activity
Traveling
Using equipment
Using supplies
Total overhead
Cost Driver
Number of clients served
Equipment hours
Area serviced in square yards
Cost
$ 15,600
37,200
79,800
$132,600
Cost Driver Volume
Commercial
15
3,700
130,000
Residential
45
2,300
80,000
Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations.
Round final answers to the nearest whole dollar.)

Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations.
Round final answers to the nearest whole dollar.)
a. Revenue
b.
Direct Labor
Overhead
Profit
Total Overhead
Profit
Commercial
Residential

Expert Solution

Step 1

In order to determine the profit, all the expenses (i.e. direct expenses as well as indirect expenses) are required to be subtracted from the sales revenue.

If the sales revenue is less that the expenses incurred it will result in occurrence of losses whereas if the sales revenue is more than the cost incurred it will result in occurrence of profit.

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