Question

Rennie Plant Service completed a special landscaping job for Brenton Company. rennie uses ABC and has the following predetermined overhead allocation rates:

Activity Predetermined

Allocation Base Overhead Allocation Rate

Designing Number of designs \( 290 per design

Planting Number of plants \) 20 per plant

The Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.

Requirements

2. If Brenton paid $3,690 for the job, what is the operating income or loss?

Short answer

Operating Income: $2,000

Step-by-step solution

Step-by-Step-SolutionStep 1: Operating income

Operating income is the difference between the net income and the operating cost. Operating income denotes the amount earned in performing a complete cycle of operation. Operating cost includes the direct labor cost, material cost, and overhead cost.

Operating income earned is spent on after production activities to make sales and the residual amount is called the net profit.

Computation of operating income

$$\begin{gathered} \mathbf{Operating}\mathbf{}\mathbf{Income}\mathbf{=}\mathbf{Price}\mathbf{}\mathbf{paid}\mathbf{-}\mathbf{Total}\mathbf{}\mathbf{cost} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{690}\mathbf{-}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{690} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000} \end{gathered}$$