Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Heidt Cleaning Services (HCS) is a local custodial service company serving both the residential and commercial markets. The owner is considering dropping the commercial clients because that business seems only marginally profitable.

Twenty-five employees worked a total of 45,300 hours last year, 30,200 on commercial jobs and 15,100 on residential jobs. Wages were $20 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. Given current economic conditions and competition, HCS bills residential clients $40 per hour and commercial clients $30 per hour.

Questions:

  1. If overhead for the year was $404,580, what were the profits of the residential and commercial services using labor-hours as the allocation base?

    Note: Do not round intermediate calculations. Round final answers to the nearest whole dollar.

  2. Overhead consists of costs of supervision, equipment used (including vehicle rental), and supplies used, which can be traced as follows:

    Activity Cost Driver Cost Cost Driver Volume
    Commercial Residential
    Supervision Number of clients served $ 47,460 20 64
    Equipment depreciation and lease Equipment hours 188,000 3,000 2,000
    Miscellaneous supplies Area serviced in square yards 169,120 76,000 36,000
    Total overhead   $ 404,580    

    Recalculate total overhead and profits for commercial and residential services based on these activity bases.

    Note: Round intermediate calculations to 2 decimal places.

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Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning