Refer to the data in Exercise 5.7. Vince Melders, owner of EcoScape, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identi-
cal amounts of prime cost. Vince met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Vince created a new
company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following:
June July August
Number of systems installed 60 80 120
Direct materials used $18,000 $24,000 $36,000
Direct labor incurred $12,000 $16,000 $24,000
Overhead $10,900 $12,340 $14,500
Required:
1. Should Irrigation Specialties use process costing or job-order costing? Explain.
2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system
installed in June? In July? In August? Round your answers to the nearest dollar.
3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead
for the year is $54,000, and estimated production is 600 watering systems. What is the prede-
termined overhead rate per system? What is the cost of a single system installed in June? In
July? In August?