Question

Patterson Lawn Co. wants to determine the cost of each lawn care maintenance job. The Company has two operating departments, one that performs lawn care services for commercial properties and one that services residential properties. Both operating departments are supported by two service departments, administrative and machine maintenance. Costs for each of these supporting departments are as follows:

	Administrative		Machine Maintenance
Total cost	$150,000		$225,000

The following estimates that are related to the operating departments is as follows:

	Commercial				Residential				Total
	properties				properties
# of employees		40				20				60
# of customers		125				160				285
# of billable hours		3,000				2,000				5,000
Total overhead cost*	$	425,000			$	350,000			$	775,000

*Note that total overhead cost includes costs allocated from service departments and other overhead costs.

The Company uses the direct method for all cost allocations. Assume that total overhead cost is allocated based on the # of billable hours incurred by each operating department. Suppose a lawn care maintenance job in the residential properties department has a direct cost of $150 and takes 2 hours to complete. What is the total cost of this job? Please show your work.

Multiple Choice

• $750

• $500

• $150

• $350

Answer 1

Answer: Option--(b): $500 Workings: Costs associated with a lawn care maintenance job in the residential properties department: Direct costs Add: Overhead costs allocated Total cost of this job $150 $350 (2 hours x ($350,000 / 2,000 hours)] $500