Exercise 5.7 (Algorithmic)

Characteristics of Production Process, Cost Measurement

Vince Melders, 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	6,710
Direct labor cost	$87,230
Overhead cost	$50,325

During the year, the following actual amounts were experienced:

Number of direct labor hours	6,030
Direct labor incurred	$84,420
Overhead incurred	$50,049.00

Required:

1. Should EcoScape use process costing or job-order costing?

- Select your answer -Process costingJob-order costingItem 1

2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours,

What is the overhead rate? Round your answer to the nearest cent.

$ per direct labor hour

What is the average actual wage rate?

$ per direct labor hour

What is the cost of an installation that takes $3,240 of direct materials and 20 direct labor hours?

$

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1. Job-order costing system accumulates costs by job. The key feature of this costing system is that the cost of one job differs from that of another job and must be monitored separately. Process costing system is used when units are homogenous, or massed produced.

2. Predetermined OH rate = budgeted OH costs budgeted amount of driver

Average wage rate = Direct labor used direct labor hours

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