Tony Jefferson, owner of Rainking of Exercise 5-2, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Tony met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Tony created a new company, Waterpro, to handle the subdivision business. In its first three months in business, Waterpro experienced the following:

Required:
1. Should Waterpro use process costing or job-order costing? Explain.
2. If Waterpro uses an actual costing system, what is the cost of a single system installed in June? In July? In August?
3. Now assume that Waterpro uses a normal costing system. Estimated overhead for the year is $60,000, and estimated production is 600 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?

Transcribed Image Text:

June July August Number of systems installed 25 50 100 Direct materials used $5,000 $10,000 $20,000 Direct labor incurred $5,250 $10,500 $21,000 Overhead $15,000 $6,000 $8,400