Earth and Artistry, Inc. provides commercial landscaping services. Sasha Cairns, the firm's owner, wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firm's costs, Cairns has developed the following preliminary cost estimates for each 1,000 square feet of landscaping. Direct material $460 Direct labor (5 direct-labor hours at $10 per hour) Overhead (at $17 per direct-labor hour) 50 85 $595 Total cost per 1,000 square feet Cairns is quite certain about the estimates for direct material and direct labor. However, she is not as comfortable with the overhead estimate. The estimate for overhead is based on the overhead costs that were incurred during the past 12 months as presented in the following schedule. The estimate of $17 per direct-labor hour was determined by dividing the total overhead costs for the 12-month period ($646,000) by the total direct-labor hours (38,000) Overtime Regular Direct- Total Direct- Direct- Total Labor Hours* Labor Hours Labor Hours Overhead January February March 52,000 49,000 57,000 2,440 3,010 2,660 172 2,610 3,020 2,710 16 April 2,9 2.980 500 60,000 486 June 2,660 760 56,000 3,420 July August ber 59,000 3,410 680 4,090 3,030 48,000 se October 2,940 2,960 56,000 28 November 50,000 2,680 3,470 34,910 20 2,700 3,730 38,000 December 58,000 260 $646,000 .090 Total *The overtime premium is 50 percent of the direct-labor wage rate. Cairns believes that overhead is affected by total monthly direct-labor hours. Cairns decided to perform a least-squares regression of overhead (OH) on total direct-labor hours (DLH). The following regression formula was obtained. OH $43,190 $3.36 DLH Required: 2. Using the overhead formula that was derived from the least-squares regression, determine a total variable-cost estimate for each 1,000 square feet of landscaping. 3. Cairns has been asked to submit a bid on a landscaping project for the city government consisting of 64,000 square feet. Cairns estimates that 50 percent of the direct-labor hours required for the project will be on overtime. Calculate the incremental costs that should be included in any bid that Cairns would submit on this project. Use the overhead formula derived from the least-squares regression. 5. After attending a seminar on activity-based costing, Cairns decided to further analyze the company's activities and costs. She discovered that a more accurate portrayal of the firm's cost behavior could be achieved by dividing overhead into three separate pools, each with its own cost driver. Separate regression equations were estimated for each of the cost pools, with the following results. $10,800 $3.70 DLH OH1 + where DLH denotes direct-labor hours $13.70 SFS, OH2- $9,000 where SFS denotes the number of square feet of turf seeded (in thousands) OH3 $8,400 $6.30 PL + where PL denotes the number of individual plantings (e.g., trees and shrubs) Assume that 5 direct-labor hours will be needed to landscape each 1,000 square feet, regardless of the specific planting material used Suppose the landscaping project for the city will involve seeding all 64,000 square feet of turf and planting 70 trees and shrubs. Calculate the incremental variable overhead cost that Cairns should include in the bid. a. b. Recompute the incremental variable overhead cost for the city's landscaping project assuming half of the 64,000-square-foot landscaping area will be seeded and there will be 260 individual plantings. The plantings will cover the entire 64,000-square-foot area. Earth and Artistry, Inc. provides commercial landscaping services. Sasha Cairns, the firm's owner, wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firm's costs, Cairns has developed the following preliminary cost estimates for each 1,000 square feet of landscaping. Direct material $460 Direct labor (5 direct-labor hours at $10 per hour) Overhead (at $17 per direct-labor hour) 50 85 $595 Total cost per 1,000 square feet Cairns is quite certain about the estimates for direct material and direct labor. However, she is not as comfortable with the overhead estimate. The estimate for overhead is based on the overhead costs that were incurred during the past 12 months as presented in the following schedule. The estimate of $17 per direct-labor hour was determined by dividing the total overhead costs for the 12-month period ($646,000) by the total direct-labor hours (38,000) Overtime Regular Direct- Total Direct- Direct- Total Labor Hours* Labor Hours Labor Hours Overhead January February March 52,000 49,000 57,000 2,440 3,010 2,660 172 2,610 3,020 2,710 16 April 2,9 2.980 500 60,000 486 June 2,660 760 56,000 3,420 July August ber 59,000 3,410 680 4,090 3,030 48,000 se October 2,940 2,960 56,000 28 November 50,000 2,680 3,470 34,910 20 2,700 3,730 38,000 December 58,000 260 $646,000 .090 Total *The overtime premium is 50 percent of the direct-labor wage rate. Cairns believes that overhead is affected by total monthly direct-labor hours. Cairns decided to perform a least-squares regression of overhead (OH) on total direct-labor hours (DLH). The following regression formula was obtained. OH $43,190 $3.36 DLH Required: 2. Using the overhead formula that was derived from the least-squares regression, determine a total variable-cost estimate for each 1,000 square feet of landscaping. 3. Cairns has been asked to submit a bid on a landscaping project for the city government consisting of 64,000 square feet. Cairns estimates that 50 percent of the direct-labor hours required for the project will be on overtime. Calculate the incremental costs that should be included in any bid that Cairns would submit on this project. Use the overhead formula derived from the least-squares regression. 5. After attending a seminar on activity-based costing, Cairns decided to further analyze the company's activities and costs. She discovered that a more accurate portrayal of the firm's cost behavior could be achieved by dividing overhead into three separate pools, each with its own cost driver. Separate regression equations were estimated for each of the cost pools, with the following results. $10,800 $3.70 DLH OH1 + where DLH denotes direct-labor hours $13.70 SFS, OH2- $9,000 where SFS denotes the number of square feet of turf seeded (in thousands) OH3 $8,400 $6.30 PL + where PL denotes the number of individual plantings (e.g., trees and shrubs) Assume that 5 direct-labor hours will be needed to landscape each 1,000 square feet, regardless of the specific planting material used Suppose the landscaping project for the city will involve seeding all 64,000 square feet of turf and planting 70 trees and shrubs. Calculate the incremental variable overhead cost that Cairns should include in the bid. a. b. Recompute the incremental variable overhead cost for the city's landscaping project assuming half of the 64,000-square-foot landscaping area will be seeded and there will be 260 individual plantings. The plantings will cover the entire 64,000-square-foot area