Question

Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year:

Number of direct labor hours	6,720
Direct labor cost	$67,200
Overhead cost	$50,400

During the year, the following actual amounts were experienced:

Number of direct labor hours	6,045
Direct labor incurred	$66,495
Overhead incurred	$50,500

Vince Melders, owner of EcoScape, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Vince met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Vince created a new company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following:

	June	July	August
Number of systems installed	48	68	88
Direct materials used	$11,520	$16,320	$21,120
Direct labor incurred	$7,680	$10,880	$14,080
Overhead	$6,912.00	$7,616.00	$8,448.00

Required:

1. Should Irrigation Specialties use process costing or job-order costing?

- Select your answer -Process costingJob-order costingItem 1

2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system installed in June? In July? In August? Round your answers to the nearest dollar.

June	$ per system
July	$ per system
August	$ per system

3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $73,600, and estimated production is 640 watering systems. What is the predetermined overhead rate per system?

$ per system installed

What is the cost of a single system installed in June? In July? In August?

June	$ per system
July	$ per system
August	$ per system

Answer 1

Job order costing Yes, the irrigation specialties can use the Job order costing as different jobs are performed. As per the requirement, it is clearly specified that there different jobs. From this it is clear that job order costing can be used. 2. Compute the cost per system: Particulars JuneJuneAugust Direct material Direct labor Overhead Total cost Numbe of s Cost per systenm S25,842 $34,816 $43,648 installed S 48 S68S 88 S 538S 512 S 496 June S 538 June S 512 August S 496 em em em Determine the company's pre-determined overhead rate as follows: Estimated manu facturing overhead Allocation Base Predetermined overhead rate- Estimated manufacturing overhead $73,600 Estimated systems 640 $73,600 640 Predetermined overhead rate $115 per system. Therefore, the Pre-determined Overhead rate is $115 per system

Compute the cost per system: Particulars June JuneAugust Direct material Direct labor S 7,680$10,880 $14,080 June: 48x115 July: 68x115 Au Total cost Numbe of systems installed S 48 S 68 S 88 Cost per systemm 88x115 S 5,520 S 7,820 $10,120 S 509 515 S 515 June S509 per system June S 515 Au em S 515 em