We-Clean, Inc., is a home-cleaning service. It originally

| October 22, 2018

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 43,000 hours last year, 25,000 on residential jobs and 18,000 on commercial jobs. Wages were $15 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 $25 per hour for commercial work. Required: (a) If overhead for the year was $133,282, what were the profits of the commercial and the residential services using labor-hours as the allocation base? (Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.) (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 $ 17,262 15 48 Using equipment Equipment hours 40,020 3,800 2,000 Using supplies Area serviced in square yards 76,000 120,000 80,000 Total overhead $ 133,282 Recalculate profits for commercial and residential services based on these activity bases. (Do not round intermediate calculations. Round “Profit” to the nearest whole dollar.) ——————————————————————————————- Bob’s Baskets, Inc., manufactures and sells two types of baskets, deluxe and standard. Last year, Bob’s Baskets had the following costs and revenues: BOB’S BASKETS, INC. Income Statement Deluxe Standard Total Revenue $ 141,000 $ 159,000 $ 300,000 Direct materials 20,000 20,000 40,000 Direct labor 76,000 44,000 120,000 Overhead costs Administration 18,000 Production setup 37,700 Quality control 20,000 Distribution 15,600 Operating profit $ 48,700 Bob’s Baskets currently uses labor costs to allocate all overhead but is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining overhead: Activity Level Activity Cost Driver Deluxe Standard Setting up Number of production runs 10 19 Performing quality control Number of inspections 40 40 Distribution Number of units shipped 80,000 115,000 Required: (a) Complete the income statement using the preceding activity bases. (Do not round intermediate calculations.) (c) Restate the income statement for Bob’s Baskets using direct labor costs as the only overhead allocation base. (Do not round intermediate calculations. Round “Overhead costs” to the nearest dollar.)

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