Question

Costs of Services Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 0.9 hours. On average, HHH completes about 9,000 cleanings per year. The following total costs are associated with the total cleanings: $19,800 Direct materials Direct labor Variable overhead Fixed overhead 234,000 13,500 15,300 Required: If required, round your answers to the nearest cent. 1. Calculate the prime cost per cleaning. per cleaning 2. Calculate the conversion cost per cleaning. per cleaning 3. Calculate the total variable cost per cleaning. per cleaning 4. Calculate the total service cost per cleaning. per cleaning 5. What if rent on the office that Jean and Tom use to run HHH increased by $900? Which of the following statements best describes the effect of this on HHH's costs? Prime costs would increase Conversion costs per cleaning would increase Total service costs per cleaning would decrease Total variable costs would decrease

Answer 1

Amounts 1) Prime cost per cleaning Particulars Direct materials Direct labor Total Prime cost No of cleaning in year Prime cost per cleaning 19,800 234,000 253,800 9,000 28.20 2) Conversion cost per cleaning Particulars Direct labor Variable overhead Fixed overhead Total Conversion cost No of cleaning in year Conversion cost per cleaning Amounts 234,000 13,500 15,300 262,800 9,000 29.20 3) Total variable cost per cleaning Particulars Direct materials Direct labor Variable overhead Total variable cost No of cleaning in year Prime cost per cleaning Amount $ 19,800 234,000 13,500 267,300 9,000 29.70 4) Total servcie cost per cleaning Particulars Direct materials Direct labor Variable overhead Fixed overhead Total service cost No of cleaning in year Prime cost per cleaning Amounts 19,800 234,000 13,500 15,300 282,600 9,000 31.40 5) Office rent is fixed overhead hence conversion cost will increase as per the options provided. So answer is Conversion cost per cleaning would increase.