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 6,560
Direct labor cost $59,040
Overhead cost $57,072

During the year, the following actual amounts were experienced :

Number of direct labor hours 6,150
Direct labor incurred $61,500
Overhead incurred $57,810

a. Should EcoScape use process costing or job-order costing?
b. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours, What is the overhead rate? (Round your answer to the nearest cent.)
c. What is the average actual wage rate?
d. What is the cost of an installation that takes $3,350 of direct materials and 30 direct labor hours?

Answer 1

EcoScape Company

a. EcoScape should use a job-order costing method because each job is different.

b. The overhead rate is $8.70.

c. The average actual wage rate is $10

d. The cost will be equal to $3,911.

Step-by-step explanation:

a) Data and Calculations:

Estimated Actual

Number of direct labor hours 6,560 6,150

Direct labor cost $59,040 $61,500

Overhead cost $57,072 $57,810

Overhead rate = $57,072/6,560 = $8.70

Average actual wage rate = $61,500/6,150 = $10

The cost of an installation that takes $3,350 of direct materials and 30 direct labor hours will be:

Direct materials $3,350

Direct labor cost 300 (30 * $10)

Overhead cost 261 (30 * $8.70)

Total costs $3,911