Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please see attached - i need this tomorrow please! Thank you so much! Profitability Gallatin Carpet Cleaning is a small, family-owned business operating out of

please see attached - i need this tomorrow please! Thank you so much!image text in transcribed

Profitability 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 $28 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 activitybased costing. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below: Activity Cost Pool Activity Measure Activity for the Year Square feet cleaned Cleaning carpets (00s) 20,000 hundred square feet Travel to jobs Miles driven 60,000 miles Job support Number of jobs 2,000 jobs Other (costs of idle capacity and organization-sustaining costs) None Not applicable The total cost of operating the company for the year is $430,000, which includes the following costs: Wages $ 150,000 Cleaning supplies 40,000 Cleaning equipment depreciation 20,000 Vehicle expenses 80,000 Office expenses 60,000 President's compensation 80,000 $ 430,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Travel to Job Carpets Jobs Support Other Wages 70% 20% 0% 10% Cleaning supplies 100% 0% 0% 0% Cleaning equipment depreciation 80% 0% 0% 20% Vehicle expenses 0% 60% 0% 40% Office expenses 0% 0% 45% 55% President's compensation 0% 0% 40% 60% 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. o prepare the first-stage allocation of costs to the activity cost pools. o compute the activity rates for the activity cost pools. o o o o The company recently completed a 5 hundred square foot carpet -cleaning job at the Flying N ranch--a 75-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. The revenue from the Flying N ranch was $140 (5 hundred square feet @ $28 per hundred square feet). prepare a report showing the margin from this job. What do you conclude concerning the profitability of the Flying N ranch job? Explain. What advice would you give the president concerning pricing jobs in the future? Reference: Noreen, E. W., Brewer, P. B., Garrison R. H. (2011). Managerial accounting for managers (2nd ed.). New York, NY: McGraw Hill

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Financial accounting

Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas

8th Edition

9780135114933, 136108865, 978-0136108863

Students also viewed these Accounting questions