LawnCare USA provides lawn care and landscaping services to commercial clients. LawnCare USA uses activity-based costing to bid on jobs and to evaluate their profitability. LawnCare USA reports the following budgeted annual costs: Wages and salaries Depreciation Supplies Other overhead $360,000 72,000 ు.© 288,000 $840,000 Total overhead costs John Gilroy, controller of LawnCare USA, has established four activity cost pools and the following bud- geted activity for each cost poot: Activity Cost Pool Estimating jobs Total Activity for the Year 250 estimates Activity Measure Number of job estimates Lawn care Number of direct labor-hours 10,000 direct labor-hours 500 design hours Not applicable Landscape design Number of design hours Facility-sustaining costs that are not allocated to jobs Other Gilroy estimates that LawnCare USA's costs are distributed to the activity-cost pools as follows: Landscape Design 15% Estimating Jobs Lawn Care 70% Other 10% Total 100% Wages and salaries Depreciation Supplies Other overhead 5% 10% 65% 10% 15% 100% 0% 100% 0% 0% 100% 15% 50% 20% 15% 100% Sunset Office Park, a new development in a nearby community, has contacted LawnCare USA to provide an estimate on landscape design and annual lawn maintenance, The job is estimated to require a single landscape design requiring 40 design hours in total and 250 direct labor-hours annually. LawnCare USA has a policy of pricing estimates at 150% of cost.

Q1. Calculate the cost of an interior door and an exterior door under the existing simple costing system.

The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A $ Machine B $ 0 40,000.00 50,000.00 1 10,000.00 8,000.00 2 10,000.00 8,000.00 3 10,000.00 + replacement 8,000.00 4   8,000.00 + replacement   These costs are expressed in real terms. 1. Suppose you are Borstal’s financial manager. If you had to buy one or the other machine and rent it to the production manager for the machine’s economic life, what annual rental payment would you have to charge? Assume a 6% real discount rate and ignore taxes.    2. Which machines should Borstal buy?    3. Suppose you actually do buy one of the machines and rent it to the production manager. How much would you actually have to charge in each future year if there is steady 8% per year inflation?

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