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 $22.55 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 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, she designed a simple system consisting of four activity cost pools.

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) 8,000 hundred square feet

Travel to jobs Miles driven 242,500 miles

Job support Number of jobs 2,000 jobs

Other (organization-sustaining costs and idle capacity costs) None Not applicable

The total cost of operating the company for the year is $358,000 which includes the following costs:

Wages $ 144,000

Cleaning supplies $30,000

Cleaning equipment depreciation $10,000

Vehicle expenses $39,000

Office expenses $56,000

Presidents compensation $79,000

Total cost $358,000

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 73% 14% 0% 13% 100%

Cleaning supplies 100% 0% 0% 0% 100%

Cleaning equipment depreciation 71% 0% 0% 29% 100%

Vehicle expenses 0% 80% 0% 20% 100%

Office expenses 0% 0% 62% 38% 100%

Presidents compensation 0% 0% 33% 67% 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 51-mile round-trip journey from the companys offices in Bozeman. Compute the cost of this job using the activity-based costing system.

4. The revenue from the Flying N Ranch was $135.30 (600 square feet @ $22.55 per hundred square feet). Calculate the customer margin earned on this job.