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 $22.1 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 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 Cost Pool Activity Measure Activity for the Year:

-Cleaning carpets Square feet cleaned: 12,000 hundred square feet -Travel to jobs Miles driven: 51,500 miles -Job support Number of jobs: 2,000 jobs -Other None Not applicable (costs of idle capacity and organization-sustaining costs) The total cost of operating the company for the year is $362,000, which includes the following costs: Wages: $141,000 Cleaning supplies: $22,000 Cleaning equipment depreciation: $16,000 Vehicle expenses: $31,000 Office expenses: $70,000 President's compensation: $82,000 Total cost: $362,000 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 71% 11% 0% 18% 100%

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

Cleaning equipment 70% 0% 0% 30% 100%

Vehicle expenses 0% 84% 0% 16% 100%

Office expenses 0% 0% 61% 39% 100%

President's compensation 0% 0% 29% 71% 100%

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

1. Prepare the first-stage allocation of costs to the activity cost pools.

Distribution of Resource Consumption Across Activity Cost Pools Cleaning Carpets Travel to Jobs Job Support Other Total

Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation

2. Compute the activity rates for the activity cost pools. Activity Cost Pool Activity Rate Cleaning carpets _____ per hundred square feet Travel to jobs _____ per mile Job support _____ per job

3. The company recently completed a 6 hundred square foot carpet-cleaning job at the Flying N rancha 60-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. Activity Cost Pool ABC Cost: Cleaning carpets: Travel to jobs: Job support: Total:

4. The revenue from the Flying N ranch was $132.6 (6 hundred square-feet @ $22.1 per hundred square feet). Compute the margin from this job. Margin earned on job: