PlanetCare, Inc. is a garden service. The company originally specialized in serving residential clients, but has recently started contracting for work with larger commercial clients. The owner is considering reducing the residential services and increasing commercial lawn care.

Five field employees are expected to work a total of 10,000 hours next year - 6,500 on residential jobs and 3,500 on commercial jobs. Wages are $9 per hour for all work performed. Direct materials used are minimal and are included in overhead. Overhead for the year is expected to be $62,000 and is allocated based on labor hours worked, which is also the basis for customer charges. Because of greater competition for commercial accounts, the owner can charge $22 per hour for residential work but only $19 per hour for commercial work.

a)What are the expected profits of commercial and of residential services using traditional costing with labor hours as the allocation base?

b) Overhead costs consist of office supplies, garden supplies, and depreciation and maintenance on equipment. These costs can be traced to the following activities:

a)Show management that the total overhead costs for the company are the same whether traditional or ABC costing is used.