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Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.35 per hundred square feet.

Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.35 per hundred square feet. However, there is some question about whether the company is making a profit on jobs requiring considerable travel time. The owners daughter suggested answering this question by designing an activity-based costing system using the information shown below:

Activity Cost Pool Activity Measure Activity for the Year
Cleaning carpets Square feet cleaned (00s) 10,000 hundred square feet
Travel to jobs Miles driven 157,000 miles
Job support Number of jobs 2,300 jobs
Other (organization-sustaining costs and idle capacity costs) None Not applicable

The total cost of operating the company for the year is $352,000 which includes the following costs:

Wages $ 139,000
Cleaning supplies 25,000
Cleaning equipment depreciation 12,000
Vehicle expenses 35,000
Office expenses 63,000
Presidents compensation 78,000
Total cost $ 352,000

She distributed these operating costs across her four activities as follows:

Distribution of Resource Consumption Across Activities
Cleaning Carpets Travel to Jobs Job Support Other Total
Wages 77% 12% 0% 11% 100%
Cleaning supplies 100% 0% 0% 0% 100%
Cleaning equipment depreciation 63% 0% 0% 37% 100%
Vehicle expenses 0% 81% 0% 19% 100%
Office expenses 0% 0% 63% 37% 100%
Presidents compensation 0% 0% 27% 73% 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.
  2. Compute the activity rates for the activity cost pools.
  3. The company recently completed a 600-square-foot carpet-cleaning job at the Flying N Rancha 53-mile round-trip from the companys home office. Compute the cost of this job using the activity-based costing system.
  4. The revenue from the Flying N Ranch was $74.10 (600 square feet @ $12.35 per hundred square feet). Calculate the customer margin earned on this job.

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