Question

Characteristics of Production Process Cost Measurement Vince Melders, of EcoScape Company, designs and installs custom lawn and garden labor for installing the systems. EcoScape estimated the following for the year gabion systems for homes and businesses throughout the state. Each bis different reag erent materials and 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 366,495 Overhead incurred S50 500 Required: 1. Should EcoScape use process costing or border costing? Job-order costing 2. 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 8.40 X per direct labor hour What is the average actual wage rate? 9 X per direct labor hour What is the cost of an installation that takes $3,500 of direct materials and 20 direct labor hours?

Answer 1

Ans:

Ans:1

Eco scape company designe and installs customer lawn and garden irrigation system for home and businesses throughout the state.

As each job is different and requires different material and labor for installing the system, therefore Ecoscape use Job costing rather than process costing in order to make reasonable quote for individual job on the basis of job cost.

Ans:2

Overhead rate = Estimated overhead cost / Estimated direct labor hours = $50,400 / 6720 = $7.50 per hour

Average actual wage rate = Actual labor cost / actual labor hours = $66495 / 6045 = $11 per hour

Cost of installation involving $3500 direct material ans 20 direct labor hours:

Direct material + Direct labor + Applied overhead = $3,500 + (20*$11) + (20 * $7.50) = $3,870

Ans:3

Ecoscope is doing design and installation of lawn and garden irrigation system and this is specialized job that requires different kind of material, labor and overhead for different job as per requirement.

Therefore using normal costing system will result in standard labor & overhead to be charged for each job though same requires some special needs and will result in excees pricing for job that requires less efforts and low pricing for job that requires more efforts.

Therefore ecoscope is having difficulty using an normal costing system, It should use job costing system.