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 $6,720$

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 Melders, 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 $486888$

Direct materials used $$14,400$ $$20,400$ $$26,400$

Direct labor incurred $$9,600$ $$13,600$ $$17,600$

Overhead $$8,640\mathrm{.}00$ $$9,520\mathrm{.}00$ $$10,560\mathrm{.}00$

Required:

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

Process 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 $$80,500,$ and estimated production is $700$ 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

Feedback Area

Feedback

$1.$ Consider the different methods of process costing and job$-$order costing and decide which would be a better fit for Irrigation Specialties.

$2.$ Actual cost systems use actual costs for direct materials, direct labor, and overhead to determine unit cost.

$3.$ Predetermined OH rate $=$ estimated annual OH $-$: estimated production. Normal costing system uses actual costs for direct materials, direct labor, and predetermined overhead to calculate unit cost.