Joe’s Lawn Care Service primarily mows lawns for residential customers. Management has determined direct labor hours is the primary cost driver and has developed the following cost equations based on direct labor hours:
Lawn supplies (variable) ..... y = $0 + $ 4.00X
Direct labor (variable) ...... y = $0 + $ 12.00X
Overhead (mixed) ...... y = $8,000 + $ 1.00X
a. Prepare a flexible budget for each of the following activity levels: 550, 600, 650, and 700 direct labor hours.
b. Determine the total cost per direct labor hour at each of the levels of activity.
c. The company normally records 650 direct labor hours during June. Each job typically requires 1.45 hours of labor time. If management wants to earn a profit equal to 40 percent of the costs incurred, what should the charge be to an average lawn-care customer?