Characteristics of Production Process, Cost Measurement

Vince Melders, of EcoScape Company, designs and installs customlawn and garden irrigation systems for homes and businessesthroughout the state. Each job is different, requiring differentmaterials and labor for installing the systems. EcoScape estimatedthe following for the year:

Number of direct labor hours	6,720
Direct labor cost	$67,200
Overhead cost	$50,400

During the year, the following actual amounts wereexperienced:

Number of direct labor hours	6,045
Direct labor incurred	$66,495
Overhead incurred	$50,500

Vince Melders, owner of EcoScape, noticed that the wateringsystems for many houses in a local subdivision had the same layoutand required virtually identical amounts of prime cost. Vince metwith the subdivision builders and offered to install a basicwatering system in each house. The idea was acceptedenthusiastically, so Vince created a new company, IrrigationSpecialties, to handle the subdivision business. In its first threemonths in business, Irrigation Specialties experienced thefollowing:

June	July	August
Number of systems installed	48	68	88
Direct materials used	$14,976	$21,216	$27,456
Direct labor incurred	$9,984	$14,144	$18,304
Overhead	$8,985.60	$9,900.80	$10,982.40

Required:

1. Should Irrigation Specialties use processcosting or job-order costing?

2. If Irrigation Specialties uses an actualcosting system, what is the cost of a single system installed inJune? In July? In August? Round your answers to the nearestdollar.

June	$ per system
July	$ per system
August	$ per system

3. Now assume that Irrigation Specialties usesa normal costing system. Estimated overhead for the year is$47,500, and estimated production is 500 watering systems. What isthe predetermined overhead rate per system?

$ per system installed

What is the cost of a single system installed in June? In July?In August?

June	$ per system
July	$ per system
August	$ per system