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 $22.15 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 (008) Miles driven Number of jobs None Activity for the Year 11,500 hundred square feet 136,000 miles 1,800 jobs Not applicable The total cost of operating the company for the year is $356,000 which includes the following costs: Wages Cleaning supplies $145,000 30,000 Cleaning equipment depreciation 11,000 Vehicle expenses 31,000 office expenses 60,000 President's compensation 79,000 Total cost 356,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Travel Carpets to Jobs 100 Job Support Other Total
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