company considering changing mix to increase commercial and lessen residential
5 employees worked total 10,000 hours last year. 6,400 on residential and 3,600 commercial
wages were $9 per work for all.
-direct materials were minimal and included in overhead. all overhead is allocated on basis of labor hours worked.
-charges $23 per hour for residential and $18 per commercial
1)if overhead was $62,000 prepare an income statement to calculate profits of both services using labor hours as allocation base for overhead. Income statement should have 3 columns residential, commercial total.
2)A more detailed analysis of overhead revealed that it consists of three components: office supplies, garden supplies, and depreciation and maintenance of equipment. These costs can be traced to the following activities:
Activity Cost Driver Cost Commercial Residential
Office Supplies Number of clients served $8,000 15 45
and maintenance Equipment Hours 18,000 3,500 2,500
Garden Supplies Area Covered
(square yards) 36,000 65,000 35,000
Total Overhead $62,000
Prepare an income statement to recalculate the profits of each of the two services, commercial and residential, using Activity Based Costing to allocate overhead costs. The income statement should have three columns, one for commercial services, one for residential services, and one for the totals. Please show all calculations.
(C) As noted above, the owner is considering a strategy of reducing residential services and increasing commercial lawn care. Based on your ABC analysis in part (b), what recommendations do you as to this strategy?© BrainMass Inc. brainmass.com October 17, 2018, 1:22 pm ad1c9bdddf
The response addresses the query posted in 452 words with APA references
//In the following paragraphs, a company is considering changing its mix to increase the commercial and reduce the residential with the evaluation of activity-based costing method against the existing absorption costing method for indirect costs. There will also be an evaluation of the results of both the costing methods for making a rational decision. //
The company needs to calculate its indirect costs and direct costs for both, commercial and ...
The expert examines the strategies for reducing residential services and increasing commercial lawn care. The response addresses the query posted in 452 words with APA references.
Incremental operating cash flow statement for Vusi and Fezeka Msimang
Vusi and Fezeka Msimang operate a local lawn maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and feel it is time to buy a new one. They would like to know the incremental (relevant) cash flows associated with the replacement of the old riding mower. The following data are available:
There are five years remaining life of the old mower.
The old mower has a zero book value.
The new mower is expected to last five years.
The Msimangs will be allowed to depreciate the new mower over a 5-year straight-line period.
Depreciable value of the new lawn mower is R18 000.
They are subject to a 30% tax rate.
The new mower is expected to be more fuel efficient, maneuverable and durable than the previous models and can result in reduced operating expenses of R5 000 per year.
The Msimangs will buy a maintenance contract that calls for annual payments of R6 000 in year 1 and which will increase by 10% per year thereafter.
Create an incremental operating cash flow statement for the replacement of Vusi and Fezeka's John Deere riding mower. Show the incremental operating cash flow for the next five years.View Full Posting Details