Question

Manzeck Company operates a snow-removal service. The company owns five trucks, each of which has a snow plow in the front to plow driveways and a snowthrower in the back to clear sidewalks. Because plowing snow is very tough on trucks, the company incurs significant maintenance costs. Truck depreciation and maintenance represents a significant portion of the company’s overhead. The company removes snow at residential locations, in which case the drivers spend the bulk of their time walking behind the snowthrower machine to clear sidewalks. On commercial jobs, the drivers spend most of their time plowing. Manzeck allocates overhead based on labor hours. Total overhead costs for the year are $43,000. Total labor hours are 1,470 hours. The average residential property requires 0.5 hours of labor, while the average commercial property requires 2.5 hours of labor. The following additional information is available.

Expected Use Activity Cost Paols Estimated Overhead Cost Drivers per Activity Cost Drivers Plowing Snowthrowing Square yards of surface plowed Linear feet of sidewalk cleared $39,800 $4,800 185,000 57,000 Determine the predetermined overhead rate under traditional costing. (Round answer to 2 decimal places, e.g. 12.52.) Predetermined overhead rate LINK TO TEXT Determine the amount of overhead allocated to the average residential job using traditional costing based on labor hours. (Round answer to 2 decimal places, e.g. 12.25.) Amount of overhead allocated LINK TO TEXT Determine the activity-based overhead rates for each cost pool. (Round answers to 2 decimal places, e.g. 12.25.) Activity Based Overhead Rate Plowing per square yard Snowthrowings per lincar foot LINK TO TEXT Determine the amount of overhead allocated to the average residential job using ABC costing. Assume that the average residential job has 20 square yards of plowing and 60 lincar feet of snowthrowing (Round answer to 2 decimal places, e.g. 12.25.) Amount of overhead allocated

Answer 1

SOLUTION

1. Predetermined overhead rate = Total overhead costs / Total labor hours

= $43,000 / 1,470 hours = $29.25 Per hour

2. Amount of overhead allocated = Average residential property labor time * Predetermined overhead rate

= 0.5 hours * $29.25 = $14.63 per residential property

3. Plowing

Overhead cost per square yard = Total estimated overhead / Number of square yards

= $39,800 / 185,000 = 0.22 per square yard

Snowthrowing

Overhead cost per Linear foot = Total estimated overhead / Number of linear foot

= $4,800 / 57,000 = 0.08 per liner foot

4. Overhead = (Overhead cost per square yard * Number of square yards) + (Overhead cost per Linear foot * Number of linear feet)

= (0.22 * 20) + (0.08 * 60)

= 4.4 + 4.8 = 9.20