Refer to the data in Exercise 5-7. Elin Saunders, owner of Lawn Pro, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Elin met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Elin created a new company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following:

Required:
1. Should Irrigation Specialties use process costing or job-order costing? Explain.
2. If Irrigation Specialties uses an actual costing system, what is the cost ofa single system installed in June? In July? In August?
3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $40,000, and estimated production is 500 watering systems.
What is the predetermined overhead rate per system? What is the cost of a single system installed in June? In July? In August?LO1

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June July August Number of systems installed 50 65 120 Direct materials used $15,000 $19,500 $36,000 Direct labor incurred $10,800 $14,040 $25,920 Overhead $13,000 $12,025 $10,920