Question

Requirement 1. Allocate

Lakeview LawnLakeview Lawn

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

Start by allocating

Lakeview LawnLakeview Lawn

​USA's costs to the​ activity-cost pools. ​(Enter zero in any cell if no amount should be allocated to the​ activity-cost pool.)

	Estimating	Lawn	Landscape
	jobs	care	design	Other	Total
Wages and salaries
Depreciation
Supplies
Other overhead
Total

Now select the formula used to determine the cost driver​ rates, then calculate the activity rate for each pool. ​(Abbreviation used: DLH​ = Direct​ labor-hour. Round the answers to the nearest​ cent, "X.XX".)

/

=

Cost driver rate

Estimating jobs

/

=

Lawn care

/

=

Landscape design

/

=

Requirement 2. Estimate total cost for the

VistaVista

Office Park job. How much would

Lakeview LawnLakeview Lawn

USA bid to perform the​ job?

Calculate the total costs and bid amount

Lakeview LawnLakeview Lawn

USA would charge

VistaVista

Office Park. ​(Round the answers to the nearest​ cent, "X.XX".)

Estimating jobs
Lawn care
Landscape design
Total costs
Markup multiplier		%
Bid estimate

Requirement 3.

Lakeview LawnLakeview Lawn

USA does

2727

landscape designs for its customers each year. Estimate the total cost for the

VistaVista

Office park job if

Lakeview LawnLakeview 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

Lakeview LawnLakeview Lawn

USA bid to perform the​ job? Which cost driver do you prefer for the Landscape Design​activity? Why?

How much would

Lakeview LawnLakeview Lawn

USA bid to perform the​ job?

Estimating jobs
Lawn care
Landscape design
Total costs
Markup multiplier		%
Bid estimate

Which cost driver do you prefer for the Landscape Design​ activity? Why?

While the

VistaVista

Office park landscape design is only one of

2727

performed by

Lakeview LawnLakeview Lawn

​USA, it accounts for

▼

less

more

landscape​ design-hours, making it

▼

less

more

complex than the average design. Using the number of

▼

landscape designs

landscape design-hours

as the cost driver results in a bid estimate that is too low. Using the number of

▼

landscape designs

landscape design-hours

is a more accurate measure of

Lakeview LawnLakeview Lawn

​USA's costs for each job because it

▼

distinguishes the costs between simple and complex landscape designs.

results in a more competitive bid price.

simplifies the cost allocation process.

Requirement 4.

VistaVista

Office Park asks

Lakeview LawnLakeview Lawn

USA to give an estimate for providing its services for a​ 2-year period. What are the advantages and disadvantages for

Lakeview LawnLakeview Lawn

USA to provide a​ 2-year estimate?

Because the landscape design and estimating costs are only incurred once for the entire​ job, bidding on a 2 year period

▼

allows Lakeview Lawn USA to be more price competitive.allows Lakeview Lawn USA to be more price competitive.

causes Lakeview Lawn USA's costs to be higher.causes Lakeview Lawn USA's costs to be higher.

​However, after submitting an estimate for 2​ years,

Lakeview LawnLakeview Lawn

USA would

▼

be locked into the same price comma regardless of cost increases.be locked into the same price, regardless of cost increases.

have guaranteed income benefiting Lakeview Lawn USA's profit margin comma regardless of costs.

Wages and salaries $345,000

Depreciation 68,000 Supplies 100,00

Other overhead 262,000 Total overhead costs $775,000

John

GibsonGibson​,

controller of

Lakeview LawnLakeview 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	300 estimates
Lawn care	Number of direct labor-hours	5,000 direct labor-hours
Landscape design	Number of design hours	200 design hours
Other	Facility-sustaining costs that are	Not applicable
	not allocated to jobs

GibsonGibson

estimates that

Lakeview LawnLakeview Lawn

​USA's costs are distributed to the​ activity-cost pools as​ follows:

	Estimating Jobs		Lawn Care		Landscape Design		Other	Total
Wages and salaries	5%		70%		10%		15%	100%
Depreciation	20%		60%		5%		15%	100%
Supplies	0%		100%		0%		0%	100%
Other overhead	5%		40%		25%		30%	100%

Vista

Office​ Park, a new development in a nearby​ community, has contacted

Lakeview

USA to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design

1.	Allocate Lakeview LawnLakeview Lawn ​USA's costs to the​ activity-cost pools and determine the activity rate for each pool.
2.	Estimate total cost for the VistaVista Office Park job. How much would Lakeview LawnLakeview Lawn USA bid to perform the​ job?
3.	Lakeview LawnLakeview Lawn USA does 2727 landscape designs for its customers each year. Estimate the total cost for the VistaVista Office park job if Lakeview LawnLakeview 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 Lakeview LawnLakeview Lawn USA bid to perform the​ job? Which cost driver do you prefer for the Landscape Design​ activity? Why?
4.	VistaVista Office Park asks Lakeview LawnLakeview Lawn USA to give an estimate for providing its services for a​ 2-year period. What are the advantages and disadvantages for Lakeview LawnLakeview Lawn USA to provide a​ 2-year estimate?

Answer 1

Requirement 1 :

Allocating Lakeview Lawn ​USA's costs to the​ activity-cost pools and calculation of activity cost rate:

Amounts in USD

	Estimating Job	Lawn Care	Landscape Design	Other	Total
Wages and salaries	17,250(5%)	2,41,500(70%)	34,500(10%)	51,750(15%)	3,45,000
Depreciation	13,600(20%)	40,800(60%)	3,400(5%)	10,200(15%)	68,000
Supplies	(0%)	1,00,000(100%)	(0%)	(0%)	1,00,000
Other overhead	13,100(5%)	1,04,800(40%)	65,500(25%)	78,600(30%)	2,62,000
Total	43,950	4,87,100	1,03,400	1,40,550	7,75,000
Cost driver	Number of job estimates	Number of direct labor-hours	Number of design hours	Not applicable
Total Activity for the Year	300 estimates	5000 direct labour hours	200 design hours	Not applicable
Activity Cost Rate	146.5 per estimate	97.42 per DLH	517 per design hour	Not applicable