Author Question: Business transactions are expressed in terms of money. Indicate whether the statement is true or ... (Read 59 times)

moongchi · **on:** Jul 6, 2018

Business transactions are expressed in terms of money.
Indicate whether the statement is true or false

Question 2

First stage allocation, activity-based costing, service sector.

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

John Gilroy, controller of LawnCare USA, has established four activity cost pools:

Gilroy estimates that LawnCare USA's costs are distributed to the activity-cost pools as follows:

Sunset Office Park, a new development in a nearby community, has contacted LawnCare 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 250 direct labor-hours annually. LawnCare USA has a policy of pricing estimates at 150 of cost.

Required:
1. Allocate LawnCare USA's costs to the activity-cost pools and determine the activity rate for each pool.
2. Estimate total cost for the Sunset Office Park job.
3. How much should LawnCare USA bid to perform the job?
4. Sunset Office Park asks LawnCare USA to give an estimate for providing its services for a 2-year period. What are the advantages and disadvantages for LawnCare USA to provide a 2-year estimate?

yuyiding · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

T

Answer to Question 2

1.
Estimating Jobs Lawn Care Landscape Design Other Total
Wages and salaries 18,000 252,000 54,000 36,000 360,000
Depreciation 7,200 46,800 7,200 10,800 72,000
Supplies 0 120,000 0 0 120,000
Other overhead 43,200 144,000 57,600 43,200 288,000
Total 68,400 562,800 118,800 90,000 840,000

2 and 3.
Cost Allocation Base Allocation Rate
Estimating Jobs 68,400 250 estimates 273.60/estimate
Lawn Care 562,800 10,000 DMLHs 56.28/DMLH
Landscape Design 118,800 500 design hours 237.60/design hour

Estimating jobs (1 estimate 273.60/estimate.) 273.60
Lawn care (250 DLHs 56.28/DLH) 14,070.00
Landscape design (40 design hours 237.60/design hour) 9,504.00
Total costs 23,847.60
Markup 150
Bid price 35,771.40

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.