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value: 10.00 points

Problem 7-20 Evaluating the Profitability of Services [LO2, LO3, LO4, LO5]

rev: 05_29_2014_QC_50004

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WorksheetLearning Objective: 07-02 Assign costs to cost pools using a first-stage allocation.Learning Objective: 07-05 Use activity-based costing to compute product and customer margins.

Gore Range Carpet Cleaning is a family-owned business in Eagle-Vail, Colorado. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.65 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customersparticularly those located on more remote ranches that require considerable travel time. The owners daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)	12,500	hundred square feet
Travel to jobs	Miles driven	69,000	miles
Job support	Number of jobs	1,900	jobs
Other (organization-sustaining and idle capacity costs)	None	Not applicable
The total cost of operating the company for the year is $347,000, which includes the following costs:
Wages	$	142,000
Cleaning supplies		33,000
Cleaning equipment depreciation		13,000
Vehicle expenses		30,000
Office expenses		59,000
Presidents compensation		70,000
Total cost	$	347,000
Resource consumption is distributed across the activities as follows:
	Distribution of Resource Consumption Across Activities
	Cleaning Carpets		Travel to Jobs		Job Support		Other		Total
Wages	78	%	13	%	0	%	9	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	75	%	0	%	0	%	25	%	100	%
Vehicle expenses	0	%	82	%	0	%	18	%	100	%
Office expenses	0	%	0	%	62	%	38	%	100	%
Presidents compensation	0	%	0	%	29	%	71	%	100	%
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1.	Prepare the first-stage allocation of costs to the activity cost pools. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
	Cleaning Carpets	Travel to Jobs	Job Support	Other	Total
Wages	$	$	$	$	$
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
Presidents compensation
Total cost	$	$	$	$	$
2.	Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Activity Cost Pool	Activity Rate
Cleaning carpets	$	per hundred square feet
Travel to jobs	$	per mile
Job support	$	per job
3.	The company recently completed a 6 hundred square-foot carpet-cleaning job at the Lazy Bee Rancha 60.00-mile round-trip from the companys offices in Eagle-Vail. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)
Cost	$
4.	The revenue from the Lazy Bee Ranch was $135.90 (6 hundred square-feet at $22.65 per hundred square feet). Prepare a report showing the margin from this job. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)
Gore Range Carpet Cleaning Customer MarginActivity-Based Costing
		$
Costs:
	$
	$