Question
DM Resources provides gardening services to its clients. The company uses an activity-based costing system and has provided the following data for last year: Activity
DM Resources provides gardening services to its clients. The company uses an activity-based costing system and has provided the following data for last year:
Activity Cost Pool | Total Cost in $ | Total Activity |
Gardening | 650,000 | 162,500 hours |
Job support | 127,680 | 3,800 jobs |
Client support | 42,000 | 700 clients |
Others | 74,070 |
|
Total | 893,750 |
|
The Others activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Tan and Company, requested 20 jobs during the year that required a total of 150 hours of gardening. For this service, the client was charged $3,000.
Required:
- Compute the activity rates for the activity cost pools.
- Using the activity-based costing system, compute the customer profit for the Tan and Company.
- If the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of gardening hours, compute the customer profit based on this method for the Tan and Company.
- Comment on your findings for 2 and 3.
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