Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 $22.95 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 (05) 6,500 hundred square feet Travel to jobs Miles driven 338,000 miles Job support Number of jobs 1,700 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicable The total cost of operating the company for the year is $337,000 which includes the following costs: Wages Cleaning Supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 135,000 25,000 11,000 30,000 65,000 71,000 $ 337,000 Resource consumption is distributed across the activities as follows: Distribution of Resource consumption Across Activities Cleaning Travel Carpets to Jobs Wages 754 124 Cleaning supplies 100 ON Cleaning equipment depreciation 714 Vehicle expenses 09 844 Office expenses 09 5 President's compensation 04 es 04 Job Support 04 es 09 89 594 264 Other 139 04 299 169 415 745 Total 1004 1089 1009 1004 100% 1004 Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. Required: 1. Prepare the first-stage allocation of costs to the activity cost pools. 2. Compute the activity rates for the activity cost pools. 3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N Ranch-a 57-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. 4. The revenue from the Flying N Ranch was $91.80 (400 square feet a $22.95 per hundred square feet). Calculate the customer margin earned on this job

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Government And Not For Profit Accounting

Authors: Martin Ives, Joseph R. Razek, Gordon A. Hosch

5th Edition

0130464147, 978-0130464149

More Books

Students also viewed these Accounting questions