Chapter 7 - Q5
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.85 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers-particularly those located on remote ranches that require considerable travel time. The owner's daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below: Activity Cost Pool cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 11,500 hundred square feet 83,500 miles 1,700 jobs None Not applicable The total cost of operating the company for the year is $363,000 which includes the following costs: Wages cleaning supplies cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 143,000 29,000 15,000 30,000 61,000 85,000 $363,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities cleaning Travel Carpets to Jobs Wages 71% 14% cleaning supplies 100% cleaning equipment depreciation 70% 0% Vehicle expenses 08 Office expenses President's compensation Job Support 0% 0% 0 % 0 % 60% 32% Other 15% 0% OO 00 Total 100% 100% 100% 100% 100% 100% 0% 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. 2. Compute the activity rates for the activity cost pools. 3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N ranch-a 53-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. 4. The revenue from the Flying N ranch was $95.40 (400 square feet @ $23.85 per hundred square feet). Calculate the customer margin earned on this job. Required 1 Required 2 Required 3 Required 4 Prepare the first-stage allocation of costs to the activity cost pools. Cleaning Job Carpets Travel to Jobs Support Other Total Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost Required 1 Required 2 Required 3 Required 4 Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Rate Activity Cost Pool Cleaning carpets Travel to jobs Job support per hundred square feet per mile per job Required 1 Required 2 Required 3 Required 4 The company recently completed a 400 square foot carpet-cleaning job at the Flying N ranch-a 53-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate calculations and final answer to 2 decimal places.) Cost of the job Required 1 Required 2 Required 3 Required 4 The revenue from the Flying N ranch was $95.40 (4 hundred square feet @ $23.85 per hundred square feet). Calculate the customer margin earned on this job. (Round your intermediate calculations and final answers to 2 decimal places.) Customer margin
