Orchard Services is a small, family-owned business operating. The company has always charged a flat fee per hundred square feet of lawn service for its services. The current fee is $30 per hundred square feet. However, there is some question about whether the company is making any money on jobs for some customers, particularly those located in remote areas requiring considerable travel time. The owners son Dennis, a recent Accounting graduate 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:

The total cost of operating the company includes the following costs:

Resource consumption is distributed across the activities as follows:

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required

Activity Cost Pool Lawns serviced Activity for the Activity Measure Year Square feet 20,000 hundred cleaned (the 00s) square feet Kms driven 60,000 km Travel to jobs Number of jobs 2,000 jobs Job support Other (organization-sustaining costs and idle capacity costs) None Not applicable $150,000 Wages Lawn care supplies 40,000 Equipment depreciation 30,000 Vehicle expenses 100,000 Office expenses 80,000 President's salary 70,000 Total cost $470,000 Cleaning Carpets Travel to Jobs Job Support Other Total 70% 20% 0% 10% 100% 100% 0% 0% 0% 100% Wages Cleaning supplies Cleaning equipment depreciation 80% 0% 0% 20% 100% Vehicle expenses 0% 60% 0% 40% 100% Office expenses 0% 0% 45% 55% 100% President's compensation 0% 0% 40% 60% 100% 1. Allocate the operating costs to the cost pools suggested by Edward. 2. Compute the activity rates for the activity cost pools. 3. The company recently completed two jobs: Oshawa Hamilton Square feet cleaned 500 1,000 Round trip driven (kms) 100 150 Compute the cost of these 2 jobs using the activity-based costing system. 4. Calculate the customer margin earned on these 2 jobs. 5. What do you conclude concerning the profitability of the 2 jobs? Explain. 6. What advice would you give the president concerning pricing jobs in the future