Problem 7-19 Evaluating the Profitability of Services (LO2, LO3, L04] Kenosha Winter Services is a small, family-owned snow-removal business. For its services, the company has always charged a flat fee per hundred square metres of snow removal. The current fee is $10.30 per hundred square metres. However, there is some question about whether the company is actually making any money on jobs for some customers-particularly those located on more remote properties that require considerable travel time. The owner's daughter, home from school for the summer, has suggested investigating this question using ABC. 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 Snow removal Travel to jobs Job support Other (costs of idle capacity and organization-sustaining costs) Activity Measure Square metres cleaned (00s) Kilometres driven Number of jobs Activity for the Year 55, 250 hundred square metres 30, 800 kilometres 250 jobs None NA The total cost of operating the company for the year is $540,000, which includes the following costs: Wages Supplies Snow removal equipment depreciation Vehicle expenses Office expenses President's compensation $ 210,000 50,000 30,000 50,000 80,000 120,000 Total cost $540,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption across Activity Cost Pools Job Support Wages Supplies Snow removal equipment depreciation Vehicle expenses Office expenses President's compensation Snow Removal 70% 100% 80% 03 0% Travel to Jobs 20% 0% 0% 70% 08 08 OOOOO Other 10% 0 % 20% 30% 60% 55% Total 100% 100% 100% 100% 100% 100% 08 45% 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. (Do not leave any empty spaces; input a O wherever it is required.) Snow Removal Travel to Jobs Job Support Other Total Wages Supplies Snow removal equipment depr. Vehicle expenses Office expenses President's compensation Total cost 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Cost Pool Snow removal Travel to jobs Job support Activity Rate per hundred square metres per kilometre per job 3. The company recently completed a 5,500-square-metre snow removal job at Hometown Hardware-a 95-kilometre round-trip journey from Kenosha's offices. Compute the cost of this job using the ABC system. (Round your answers to 2 decimal places.) Activity Cost Pool ABC Cost Snow removal Travel to jobs Job support Total 4. The revenue from the Hometown Hardware job was $566.50 (5,500 square metres at $10.30 per hundred square metres). Prepare a report showing the margin from this job. (Round your answers to 2 decimal places.) Sales Costs: Snow removal Travel to jobs Job support Product margin
