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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
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 $22.30 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below: Activity Measure Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (costs of idle capacity and Activity for the Year Square feet cleaned (00s)14,000 hundred square feet Miles driven 390,000 miles 1,600 jobs Number of jobs organization-sustaining costs) None Not applicable The total cost of operating the company for the year is S346,000, which includes the following costs Wages Cleaning supplies Cleaning equipment depreciation $149,000 34,000 6,000 25,000 55,000 77,000 Vehicle expenses Office expenses President's compensation Total cost $346,000 Resource consumption is distributed across the activities as follows Distribution of Resource Consumption Across Activities Cleaning Travel to Job Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation CarpetsJobsSupport 12% 0% 0% 83% 0% 0% Other 18% 0% 26% 17% 45% 70% Total 100% 100% 100% 100% 100% 100% 70% 100% 0% 0% 0% 0% 0% 090 096 30% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on
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