Problem $7-20($Algo$)$ Evaluating the Profitability of Services $[$LO$7-2,$ LO$7-3,$ LO$7-4,$ LO$7-5]$

Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $$13\mathrm{.}60$ per hundred square feet. However, there is some question about whether the company is making a profit on jobs requiring considerable travel time. The owner$$s daughter suggested answering this question by designing an activity$-$based costing system using the information shown below:

Activity Cost Pool Activity Measure Activity for the Year

Cleaning carpets Square feet cleaned $(00$s$)8,500$ hundred square feet

Travel to jobs Miles driven $176,000$ miles

Job support Number of jobs $2,700$ jobs

Other $($organization$-$sustaining costs and idle capacity costs$)$ None Not applicable

The total cost of operating the company for the year is $$344,000$ which includes the following costs:

Wages $ $135,000$

Cleaning supplies $21,000$

Cleaning equipment depreciation $12,000$

Vehicle expenses $34,000$

Office expenses $66,000$

President$$s compensation $76,000$

Total cost $ $344,000$

She distributed these operating costs across her four activities as follows:

Distribution of Resource Consumption Across Activities

Cleaning Carpets Travel to Jobs Job Support Other Total

Wages $70\%12\%0\%18\%100\%$

Cleaning supplies $100\%0\%0\%0\%100\%$

Cleaning equipment depreciation $60\%0\%0\%40\%100\%$

Vehicle expenses $0\%77\%0\%23\%100\%$

Office expenses $0\%0\%61\%39\%100\%$

President$$s compensation $0\%0\%32\%68\%100\%$

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

Required:

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 Ranch$$a $58-$mile round$-$trip from the company$$s home office. Compute the cost of this job using the activity$-$based costing system.

The revenue from the Flying N Ranch was $$54\mathrm{.}40(400$ square feet @ $$13\mathrm{.}60$ per hundred square feet$).$ Calculate the customer margin earned on this job.