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 $23.05 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) | 7,000 | hundred square feet |
Travel to jobs | Miles driven | 143,500 | 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 $352,000 which includes the following costs:
Wages | $ | 136,000 |
Cleaning supplies | 21,000 | |
Cleaning equipment depreciation | 11,000 | |
Vehicle expenses | 37,000 | |
Office expenses | 69,000 | |
Presidents compensation | 78,000 | |
Total cost | $ | 352,000 |
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities | ||||||||||
Cleaning Carpets | Travel to Jobs | Job Support | Other | Total | ||||||
Wages | 79 | % | 12 | % | 0 | % | 9 | % | 100 | % |
Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
Cleaning equipment depreciation | 69 | % | 0 | % | 0 | % | 31 | % | 100 | % |
Vehicle expenses | 0 | % | 84 | % | 0 | % | 16 | % | 100 | % |
Office expenses | 0 | % | 0 | % | 57 | % | 43 | % | 100 | % |
Presidents compensation | 0 | % | 0 | % | 27 | % | 73 | % | 100 | % |
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 200 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.
4. The revenue from the Flying N ranch was $46.10 (200 square feet @ $23.05 per hundred square feet). Calculate the customer margin earned on this job.
Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Prepare the first-stage allocation of costs to the activity cost pools. Job Cleaning Carpets Travel to Jobs Support Other Total $ Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 0 $ 0 $ 0 $ 0 $ Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Rate Activity Cost Pool Cleaning carpets Travel to jobs Job support per hundred square feet per mile per job Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 The company recently completed a 200 square foot carpet-cleaning job at the Flying N ranch-a 56-mile round-tr from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. (R intermediate calculations and final answer to 2 decimal places.) Cost of the job Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 The revenue from the Flying N ranch was $46.10 (2 hundred square feet @ $23.05 per hundred square feet). Cal customer margin earned on this job. (Round your intermediate calculations and final answers to 2 decimal places Customer margin
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started