Question

Trimmer Lawn USA provides lawn care and landscaping services to commercial clients. Trimmer Lawn USA uses​ activity-based costing to bid on jobs and to evaluate their profitability. Trimmer Lawn USA reports the following budgeted annual​ costs:

Wages and salaries	$ 535,000
Depreciation	60,000
Supplies	75,000
Other overhead	67,000
Total overhead costs	$ 737,000

John Gilroy​, controller of Trimmer Lawn ​USA, has established four activity cost pools and the following budgeted activity for each cost​ pool:
Activity Cost Pool	Activity Measure	Total Activity for the Year
Estimating jobs	Number of job estimates	125 estimates
Lawn care	Number of direct labor-hours	10,000 direct labor hours
Landscape design	Number of design hours	500 design hours
Other	Facility-sustaining costs that are not allocated to jobs	Not applicable

Gilroy estimates that Trimmer Lawn ​USA's costs are distributed to the​ activity-cost pools as​ follows:
	Estimating jobs	Lawn care	Landscape design	Other	Total
Wages and salaries	15%	55%	20%	10%	100%
Depreciation	20%	50%	15%	15%	100%
Supplies	0%	100%	0%	0%	100%
Other overhead	20%	55%	15%	10%	100%

Weston Office​ Park, a new development in a nearby​ community, has contacted Trimmer Lawn USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 125 direct​ labor-hours annually. Trimmer Lawn USA has a policy of pricing estimates at 150​% of cost.

Question:

1. Allocate Trimmer Lawn ​USA's costs to the​ activity-cost pools and determine the activity rate for each pool.

2. Estimate total cost for the Weston Office Park job. How much would Trimmer Lawn USA bid to perform the​ job?

3. Trimmer Lawn USA does 28 landscape designs for its customers each year. Estimate the total cost for the Weston Office park job if Trimmer Lawn USA allocated costs of the Landscape Design activity based on the number of landscape designs rather than the number of landscape​ design-hours. How much would Trimmer Lawn USA bid to perform the​ job? Which cost driver do you prefer for the Landscape Design​ activity? Why?

4. Weston Office Park asks Trimmer Lawn USA to give an estimate for providing its services for a​ 2-year period. What are the advantages and disadvantages for Trimmer Lawn USA to provide a​ 2-year estimate?

Answer 1

ques 1
	Estimating Jobs	Lawn Care	Landscape Design	Other	Total
Wages and salaries	$                   80,250	$           294,250	$                       107,000	$          53,500	$           535,000
Depreciation	$                   12,000	$             30,000	$                           9,000	$             9,000	$             60,000
Supplies	$                            -	$             75,000	$                                  -	$                    -	$             75,000
Other overhead	$                   13,400	$             36,850	$                         10,050	$             6,700	$             67,000
Total	$                 105,650	$           436,100	$                       126,050	$          69,200	$           737,000
Ques 2
	Cost	Allocation Base	Allocation Rate
Estimating Jobs	$                 105,650	125	$                         845.20
Lawn Care	$                 436,100	10000	$                           43.61
Landscape Design	$                 126,050	500	$                         252.10
Estimating jobs (1 estimate * $845.20/estimate.)	$                   845.20
Lawn care (125 DLHs * $43.61/DLH)	$               5,451.25
Landscape design (40 design hours*´ $252.10/design hour)	$             10,084.00
Total costs	$             16,380.45
Markup	150%
Bid price	$             24,570.68
Ques 3
	Cost	Allocation Base	Allocation Rate
Estimating Jobs	$                 105,650	125	$                         845.20
Lawn Care	$                 436,100	10000	$                           43.61
Landscape Design	$                 126,050	28	$                     4,501.79
Estimating jobs (1 estimate * $845.20/estimate.)	$                   845.20
Lawn care (125 DLHs * $43.61/DLH)	$               5,451.25
Landscape design(1design)	$               4,501.79
Total costs	$             10,798.24
Markup	150%
Bid price	$             16,197.35
would prefer hours since the quote is higher
Ques 4
Because the landscape design and estimating costs are only incurred once for the entire job, bidding on 2 years of service may allow LawnCare USA to be more competitive on a yearly basis. However, submitting an estimate for 2 years would lock LawnCare USA into the same price for both years, regardless of possible increases in their costs.