Reference no: EM13298573
We-Clean, Inc., is a home-cleaning service. It originally specialized in serving small residential clients but recently started contracting for work in large apartment and office buildings. Julie Lodge, the owner, believes that the commercial sector has more growth opportunities and is considering dropping the residential service.
Twenty cleaning employees worked a total of 34,000 hours last year, 23,000 on residential jobs and 11,000 on commercial jobs. Wages were $16 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, Julie can charge $34 per hour for residential work, but only $27 per hour for commercial work.
Required:
(a) If overhead for the year was $128,032, what were the profits of the commercial and the residential services using labor-hours as the allocation base? (Do not round intermediate calculations. Round the answers to the nearest dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.)
Commercial Residential Total
Revenue $ $ $
Direct Labor
Overhead
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Profit $ $ $
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(b) Overhead consists of costs of traveling, using equipment, and using supplies, which can be traced as follows:
Cost Driver Volume
Activity Cost Driver Cost Commercial Residential
Traveling Number of clients served $ 17,112 17 45
Using equipment Equipment hours 33,920 3,100 2,200
Using supplies Area serviced in square yards 77,000 140,000 80,000
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Total overhead $ 128,032
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Recalculate profits for commercial and residential services based on these activity bases. (Round the "Rate" to 2 decimal places and rest of the answers to the nearest dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.)
Rate Commercial Residential Total
Revenue $ $ $
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Direct Labor
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Overhead
Traveling $ $ $ $
Equipment
Supplies
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Total overhead $ $ $
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Profit $ $ $
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(c) Ms. Lodge should reconsider dropping residential services in favor of the commercial business.
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