Question
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
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 $23.20 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, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below: Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Number of jobs None Activity for the Year 14,500 hundred square feet 240,500 miles 2,100 jobs Not applicable The total cost of operating the company for the year is $370,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses office expenses President's compensation $ 149,000 22,000 19,000 40,000 60,000 80,000
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