Exercise E Landscape, Inc., is a lawn and garden service. The company originally specialized
Exercise EÂ Landscape, Inc., is a lawn and garden service. The company originally specialized in serving small residential clients; recently it has started contracting for work on larger office building grounds.
Employees worked a total of 10,000 hours last year, 6,500 on residential jobs and 3,500 on commercial jobs. Wages amounted to USD 10 per hour for all work done. Materials used are included in overhead and called supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Landscape, Inc., can charge USD 30 per hour for residential work but, because of greater competition for commercial accounts, only USD 20 per hour for commercial work.
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Using labor-hours as the basis for allocating overhead, what was the gross margin (revenues minus labor and overhead expense) for (1) commercial and (2) residential service? Assume overhead was USD 50,000.
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Overhead consists of transportation, lawn mowing and landscaping equipment costs, depreciation on equipment, supplies, fuels, and maintenance. These costs can be traced to the following activities:
Activity Level Activity Cost driver Cost Commercial Residential Transportation Clients served $10,000 15 45
Equipment costs:
Fuel, maintenance, depreciation
Equipment hours
25,000 3,000 2,000
Supplies Square yards serviced per year
15,000 100,000 50,000
Total overhead $50,000
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Recalculate gross margin for commercial and residential services based on these cost driver bases.
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Would you advise Landscape, Inc., to drop either the residential or commercial service based on your analysis? Explain15
Answers
Status NEW
Posted 03 Aug 2017 02:08 PM
My Price 15.00
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Attachments
file 1501768980-1234313_1_636340586517742240_1234313.xlsx preview (322 words )
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