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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 $23.60 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 Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (ees) 8,080 hundred square feet Travel to jobs Miles driven 189,000 miles Job support Number of jobs 1,500 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 Cleaning supplies Cleaning equipment depreciation Vehicle expenses office expenses President's compensation Total cost $ 149,000 24,000 10,000 40,000 63,000 72.000 $350.000 Resource consumption is distributed across the activities as follows: 12% Distribution of Resource Consumption Across Activities Cleaning Travel to Carpets Jobs Wages 713 Cleaning supplies 100% 0% Cleaning equipment depreciation 66% ex Vehicle expenses ex 83% office expenses ox ox President's compensation ox OX Job Support Other ox 17% ox 06 ex 34% ok 17% 633 373 33% 67% Total 100% 100% 100% 100% 100% 100% Job support consists of receiving calls from potential customers at the home office, scheduling Jobs, billing, resolving issues and so on Prepare the first-stage allocation of costs to the activity cost pools. Total Other Cleaning Carpets Travel to Jobs Job Support $ 0 0 0 0 Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost 0 0 0 $ 5 0 $ 0 $ 0 0 3
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