Reference no: EM132605025

Question - OC Garden is a garden care service. The company originally specialized in serving residential clients, but recently has started contracting for work with larger commercial clients. Wally Dyer, the owner, is considering reducing residential services and increasing commercial lawn care.

The company has five field employees who worked a total of 10,000 hours last year - 3,100 on commercial jobs and 6,900 on residential jobs. Wages paid to employees were $9 per hour for all work done. Direct materials were minimal and were included in overhead. All overhead is allocated on the basis of labor hours worked. Customer charges (billings) are based on labors hours worked. Because of greater competition for commercial accounts, Mr. Dyer can charge $23 per hour for residential work but only $18 per hour for commercial work.

Required - If overhead for the year was $62,000, create a income statement to calculate the profits of each of the two services, commercial and residential, using labor hours as the allocation base for overhead. The income statement should have three columns, one for commercial services, one for residential services, and one for the totals. Please show all calculations.