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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 $23.25 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 owners 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 (00s) 8,000 hundred square feet
Travel to jobs Miles driven 162,000 miles
Job supp. Number of jobs 1,800 jobs
Other (organization-sustaining costs and idle capacity costs) None Not applicable

The total cost of operating the company for the year is $356,000 which includes the following costs:

Wages $ 142,000
Cleaning supplies 30,000
Cleaning equipment depreciation 10,000
Vehicle expenses 35,000
Office expenses 67,000
Presidents compensation 72,000
Total cost $ 356,000

Resource consumption is distributed across the activities as follows:

Distribution of Resource Consumption Across Activities
Cleaning Carpets Travel to Jobs Job Supp. Other Total
Wages 76% 14% 0% 10% 100%
Cleaning supplies 100% 0% 0% 0% 100%
Cleaning equipment depreciation 66% 0% 0% 34% 100%
Vehicle expenses 0% 82% 0% 18% 100%
Office expenses 0% 0% 65% 35% 100%
Presidents compensation 0% 0% 27% 73% 100%

Prepare the first-stage allocation of costs to the activity cost pools.

Compute the activity rates for the activity cost pools.

The company recently completed a 400 square foot carpet-cleaning job at the Flying N Rancha 56-mile round-trip journey from the companys offices in Bozeman. Compute the cost of this job using the activity-based costing system.

The revenue from the Flying N Ranch was $93.00 (400 square feet @ $23.25 per hundred square feet). Calculate the customer margin earned on this job

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