Earth and Artistry, Inc. provides commercial landscaping services. Sasha Cairns, the firms owner, wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firms costs, Cairns has developed the following preliminary cost estimates for each 1,000 square feet of landscaping.

Direct material	$	390
Direct labor (5 direct-labor hours at $10 per hour)		50
Overhead (at $16 per direct-labor hour)		80
Total cost per 1,000 square feet	$	520

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 $16 per direct-labor hour was determined by dividing the total overhead costs for the 12-month period ($624,000) by the total direct-labor hours (39,000).

				Regular Direct-		Overtime Direct-		Total Direct-
	Total Overhead			Labor Hours		Labor Hours*		Labor Hours
January	$	52,000		2,950		200		3,150
February		47,000		2,760		30		2,790
March		47,000		3,490		50		3,540
April		53,000		2,470		260		2,730
May		51,000		2,950		410		3,360
June		58,000		3,420		720		4,140
July		60,000		3,410		610		4,020
August		50,000		3,410		290		3,700
September		53,000		2,510		70		2,580
October		47,000		2,700		30		2,730
November		49,000		2,570		40		2,610
December		57,000		3,390		260		3,650
Total	$	624,000		36,030		2,970		39,000

*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 = $36,363 + $4.81 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 62,000 square feet. Cairns estimates that 60 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 companys activities and costs. She discovered that a more accurate portrayal of the firms 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.

OH₁ = $10,900 + $4.50 DLH, where DLH denotes direct-labor hours OH₂= $9,300 + $12.50 SFS, where SFS denotes the number of square feet of turf seeded (in thousands) OH₃ = $7,900 + $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.

a. Suppose the landscaping project for the city will involve seeding all 62,000 square feet of turf and planting 90 trees and shrubs. Calculate the incremental variable overhead cost that Cairns should include in the bid.

b. Recompute the incremental variable overhead cost for the citys landscaping project assuming half of the 62,000-square-foot landscaping area will be seeded and there will be 280 individual plantings. The plantings will cover the entire 62,000-square-foot area.

Complete this question by entering your answers in the tabs below. Req 5A Req 2 Req 3 Req 5B Cairns has been asked to submit a bid on a landscaping project for the city government consisting of 62,000 square feet. Cairns estimates that 60 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. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Show less Minimum bid Req 2 Req 5A Complete this question by entering your answers in the tabs below Req 5A Req 2 Req 3 Req 5B Suppose the landscaping project for the city will involve seeding all 62,000 square feet of turf and planting 90 trees and shrubs. Calculate the incremental variable overhead cost that Cairns should include in the bid. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Total incremental variable overhead Req 5B