Question

34445 A service company, SUPER CLEAN, provides commercial and residential cleaning services. The company is currently using a job costing system. Overhead are allocated based on the direct labour hours. A. Traditional Costing with plant wide method: Using traditional costing the company calculated the overhead cost based on 21 000 hours of activity: Activity cost pools Receptionist Office supplies Estimated cost $ 25,000 $ 3,000 $ 32,500 $ 37.500 $ 98,000 Depreciation tota Required - Part A: Calculate the overhead rate using the plant wide method (one rate). Calculate the overhead rate using the departmentalmethod forresidential and commercial, Allocate 14 000 hours to commercial and 7 000 hours to Residential cleaning department. Provide your responses on the spreadsheet titled 'Required I and 24 B Activity Based Costing: SUPERICLEAN realise that the traditional method of allocating overheadis not accurate becausethe gas and depreciation do not wary with direction. The company wants to use the activity-based costing allocate the costs of the receptionist office supplies and can usage depreluation Se more curate costrestimates. This information will help management to give more accurate Quotesang improve the company's profitability

Answer 1

PART - A
1.
Total Overhead Costs
Receptionist	$25,000
Office salary	$3,000
Gas	$32,500
Depreciation	$37,500
Total Overheads	$98,000
Total activity hours	21,000
Computation of Plant Wide Overhead Rate
Total Overheads	$98,000
Total activity hours	21,000
Overhead Rate	$4.67
2.
	Residential	Commercial
Receptionist	$12,000	$13,000
Office salary	$1,500	$1,500
Gas	$19,500	$13,000
Depreciation	$22,500	$15,000
Total Overheads	$55,500	$42,500
Total activity hours	7,000	14,000
	Residential	Commercial
Total Overheads	$55,500	$42,500
Total activity hours	$7,000	$14,000
Overhead Rate	$7.93	$3.04
PART-B
3.
Commercial Cleanings
Activitywise Overhead Rates
Activity	Activity Driver	Value	Activity Quantity	Overhead Rate
Receptionist	Direct Labor Hours	$13,000	14,000	$0.93
Office salary	Direct Labor Hours	$1,500	14,000	$0.11
Gas	Kilometers	$13,000	120,000	$0.11
Depreciation	Kilometers	$15,000	120,000	$0.13
Total		$42,500
Residential Cleanings
Activitywise Overhead Rates
Activity	Activity Driver	Value	Activity Quantity	Overhead Rate
Receptionist	Direct Labor Hours	$12,000	7,000	$1.71
Office salary	Direct Labor Hours	$1,500	7,000	$0.21
Gas	Kilometers	$19,500	130,000	$0.15
Depreciation	Kilometers	$22,500	130,000	$0.17
		$55,500
4.
Residential Cleanings
Statement of 'Overhead Costs using Activity Based Costing Method
Activity	Overhead Rate	Activity Driver	Activity Quantity	Overhead Cost
Receptionist	$1.71	Direct Labor Hours	125	$213.75
Office salary	$0.21	Direct Labor Hours	125	$26.25
Gas	$0.15	Kilometers	1,800	$270.00
Depreciation	$0.17	Kilometers	1,800	$306.00
Total				$816.00
Overhead Rate per Hour = Total Overheads/Total Hours
Overhead Rate per Hour = $ 816 / 125
Overhead Rate per Hour = $ 6.53
Commercial Cleanings
Statement of 'Overhead Costs using Activity Based Costing Method
Activity	Overhead Rate	Activity Driver	Activity Quantity	Overhead Cost
Receptionist	$0.93	Direct Labor Hours	200	$186.00
Office salary	$0.11	Direct Labor Hours	200	$22.00
Gas	$0.11	Kilometers	1,100	$121.00
Depreciation	$0.13	Kilometers	1,100	$143.00
Total				$472.00
Overhead Rate per Hour = Total Overheads/Total Hours
Overhead Rate per Hour = $ 472 / 200
Overhead Rate per Hour = $ 2.36
5.
Computation of Direct Materials
Total Direct Labor Hours	125	200
Direct Material per Labor Hour	0.20	0.30
Total Direct Material Quantity	25	60
Job 1
Residential Cleaning
Computation of Total Costs
	Quantity	Rate	Amount
Direct Materials	25	$5.50	$137.50
Direct Labor	125	$19.00	$2,375.00
Overheads(as computed in Ques-4 above)			$816.00
Total Costs			$3,328.50
Job 2
Commercial Cleaning
Computation of Total Costs
	Quantity	Rate	Amount
Direct Materials	60	$5.50	$330.00
Direct Labor	200	$19.00	$3,800.00
Overheads(as computed in Ques-4 above)			$472.00
Total Costs			$4,602.00
6.
Computation of Total Costs using Traditional Method
Job 1
Residential Cleaning
Computation of Total Costs
	Quantity	Rate	Amount
Direct Materials	25	$5.50	$137.50
Direct Labor	125	$19.00	$2,375.00
Overheads( as computed in Ques-2 above)	125	$7.93	$991.25
Total Costs			$3,503.75
Job 2
Commercial Cleaning
Computation of Total Costs
	Quantity	Rate	Amount
Direct Materials	60	$5.50	$330.00
Direct Labor	200	$19.00	$3,800.00
Overheads( as computed in Ques-2 above)	200	$3.04	$608.00
Total Costs			$4,738.00