1. eBook

   Characteristics of Production Process, Cost Measurement

   Vince Kim, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year:

   Number of direct labor hours	6,720
   Direct labor cost	$67,200
   Overhead cost	$50,400

   During the year, the following actual amounts were experienced:

   Number of direct labor hours	6,045
   Direct labor incurred	$66,495
   Overhead incurred	$50,500

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

   	June	July	August
   Number of systems installed	48	68	88
   Direct materials used	$11,520	$16,320	$21,120
   Direct labor incurred	$7,680	$10,880	$14,080
   Overhead	$6,912.00	$7,616.00	$8,448.00

   Required:

   1. Should Irrigation Specialties use process costing or job-order costing?

   Job-order costingProcess costing

   2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system installed in June? In July? In August? Round your answers to the nearest dollar.

   June	$fill in the blank 2 per system
   July	$fill in the blank 3 per system
   August	$fill in the blank 4 per system

   3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $69,600, and estimated production is 580 watering systems. What is the predetermined overhead rate per system?

   $fill in the blank 5 per system installed

   What is the cost of a single system installed in June? In July? In August?

   June	$fill in the blank 6 per system
   July	$fill in the blank 7 per system
   August	$fill in the blank 8 per system

Check My Work

• Previous
• Next