Requirement 1. Allocate

Home Lawncare

USA's costs to the activity-cost pools and determine the activity rate for each pool.

Start by allocating

Home Lawncare

USA's costs to the activity-cost pools. (Enter zero in any cell if no amount should be allocated to the activity-cost pool.)

	Estimating	Lawn	Landscape
	jobs	care	design	Other	Total
Wages and salaries
Depreciation
Supplies
Other overhead
Total

Now select the formula used to determine the cost driver rates, then calculate the activity rate for each pool. (Abbreviation used: DLH = Direct labor-hour. Round the answers to the nearest cent, "X.XX".)

=

Cost driver rate

Estimating jobs

=

Lawn care

=

Landscape design

=

Requirement 2. Estimate total cost for the

Skylar

Office Park job. How much would

Home Lawncare

USA bid to perform the job?

Calculate the total costs and bid amount

Home Lawncare

USA would charge

Skylar

Office Park. (Round the answers to the nearest cent, "X.XX".)

Estimating jobs
Lawn care
Landscape design
Total costs
Markup multiplier		%
Bid estimate

Requirement 3.

Home Lawncare

USA does

35

landscape designs for its customers each year. Estimate the total cost for the

Skylar

Office park job if

Home Lawncare

USA allocated costs of the Landscape Design activity based on the number of landscape designs rather than the number of landscape design-hours. How much would

Home Lawncare

USA bid to perform the job? Which cost driver do you prefer for the Landscape Design activity? Why?

How much would

Home Lawncare

USA bid to perform the job?

Estimating jobs
Lawn care
Landscape design
Total costs
Markup multiplier		%
Bid estimate

Which cost driver do you prefer for the Landscape Design activity? Why?

While the

Skylar

Office park landscape design is only one of

35

performed by

Home Lawncare

USA, it accounts for

less

more

landscape design-hours, making it

less

more

complex than the average design. Using the number of

landscape designs

landscape design-hours

as the cost driver results in a bid estimate that is too low. Using the number of

landscape designs

landscape design-hours

is a more accurate measure of

Home Lawncare

USA's costs for each job because it

distinguishes the costs between simple and complex landscape designs.

results in a more competitive bid price.

simplifies the cost allocation process.

Requirement 4.

Skylar

Office Park asks

Home Lawncare

USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for

Home Lawncare

USA to provide a 2-year estimate?

Because the landscape design and estimating costs are only incurred once for the entire job, bidding on a 2 year period

allows Home Lawncare USA to be more price competitive.allows Home Lawncare USA to be more price competitive.

causes Home Lawncare USA's costs to be higher.causes Home Lawncare USA's costs to be higher.

However, after submitting an estimate for 2 years,

Home Lawncare

USA would

1. Allocate Home Lawncare USA's costs to the activity-cost pools and determine the activity rate for each pool. 2. Estimate total cost for the Skylar Office Park job. How much would Home Lawncare USA bid to perform the job? 3. Home Lawncare USA does 35 landscape designs for its customers each year. Estimate the total cost for the Skylar Office park job if Home Lawncare USA allocated costs of the Landscape Design activity based on the number of landscape designs rather than the number of landscape design-hours. How much would Home Lawncare USA bid to perform the job? Which cost driver do you prefer for the Landscape Design activity? Why? 4. Skylar Office Park asks Home Lawncare USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for Home Lawncare USA to provide a 2-year estimate? er CE ne in ng John Gilroy, controller of Home Lawncare USA, has established four activity cost pools and the following budgeted activity for each cost pool: Activity Cost Pool Activity Measure Total Activity for the Year Estimating jobs Number of job estimates 300 estimates Lawn care Number of direct labor-hours 5,000 direct labor-hours Landscape design Number of design hours 300 design hours Other Facility-sustaining costs that are not allocated to jobs Not applicable Gilroy estimates that Home Lawncare USA's costs are distributed to the activity-cost pools as follows: Estimating Landscape Jobs Lawn Care Design Other Total Wages and salaries 5% 55% 10% 30% 100% Depreciation 10% 55% 5% 30% 100% Supplies 0% 100% 0% 0% 100% Other overhead 20% 40% 25% 15% 100% Skylar Office Park, a new development in a nearby community, has contacted Home Lawncare USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 300 direct labor-hours annually. Home Lawncare USA has a policy of pricing estimates at 150% of cost. OI $ Wages and salaries Depreciation Supplies Other overhead 300,000 60,000 115,000 167,000 $ 642,000 Total overhead costs