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 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 $23.80 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 PoolActivity MeasureActivity for the YearCleaning carpetsSquare feet cleaned (00s)8,000hundred square feetTravel to jobsMiles driven101,500milesJob supportNumber of jobs2,000jobsOther (costs of idle capacity
and organization-sustaining costs)NoneNot applicable
The total cost of operating the company for the year is $349,000, which includes the following costs:
Wages$144,000Cleaning supplies20,000Cleaning equipment depreciation11,000Vehicle expenses36,000Office expenses56,000President's compensation82,000Total cost$349,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning CarpetsTravel to JobsJob SupportOtherTotalWages71%15%0%14%100%Cleaning supplies100%0%0%0%100%Cleaning equipment depreciation66%0%0%34%100%Vehicle expenses0%77%0%23%100%Office expenses0%0%60%40%100%President's compensation0%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.
2. Compute the activity rates for the activity cost pools.(Round your answers to 2 decimal places.)
Cleaning carpets _______ per hundred square feet
Travel to jobs ________ per mile
Job support _______ per job
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