8. Hodges and Associates is a small firm that provides structural engineering services for its clients. The company performs structural engineering services for both residential and commercial buildings. Last year, total overhead costs of $330,000 were allocated based on direct labor costs. A total of $300,000 in direct labor costs were incurred in the following areas: $120,000 in the residential segment and $180,000 in the commercial segment. Direct materials used were negligible and are included in overhead costs. Sales revenue totaled $450,000 for residential services and $330,000 for commercial services. The management of Hodges and Associates would like to use activity-based costing to allocate overhead rather than a plantwide rate based on direct labor costs. The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs. Estimated Cost Driver Activity Estimated Overhead Costs Residential Commercial Activity Cost Driver Total 4,500 8,000 Scheduling and data entry Direct labor hours Computer maintenance Number of computer hours Processing permit applications Number of applications Total 8,000 20,000 $100,000 70,000 160,000 $ 330,000 3,500 12,000 400 400 800 a. Using the plantwide allocation method, calculate the total cost and the profit for each product. (Hint: Don't forget to include all types of product costs in your total cost calculation, similar to #4a above. Product costs for this service company include direct labor and overhead.) b. Using activity-based costing, calculate the predetermined overhead rate for each activity. (Hint: Step 1 through step 3 in the activity-based costing process have already been done for you; this is step 4.) Round results to the nearest cent. c. Using activity-based costing, calculate the amount of overhead assigned to each product. (Hint: This is step 5 in the activity-based costing process.) d. Using activity-based costing, calculate the total cost and the profit for each product. (see the hint from part a) e. What caused the shift of overhead costs to the residential product using activity-based costing? How might management use this information to make improvements within the company