Reference no: EM132470839
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 $23.80 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 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:
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Activity Cost Pool
Cleaning carpets
Travel to jobs
Job support
Other (organization-sustaining capacity costs)
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costs and idle
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Activity Measure
Square feet cleaned (00s) Miles driven
Number of jobs
None
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Activity for the Year
8,500 hundred square feet 142,000 miles
1,700 jobs
Not applicable
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The total cost of operating the company for the year Is $348.000 which includes the following costs:
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Wages
Cleaning supplies
Cleaning equipment depreciation Vehicle expenses
Office expenses
President's compensation
Total cost
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S 137,000 25,000 16,000 39,000 59,000 72,000
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S 348,000
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Resource consumption is distributed across the activities as follows:
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Distribution of Resource Consumpti
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on Across Activities
Cleaning Travel
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|
|
|
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Carpets
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to Jobs
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lob support
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Other
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Total
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|
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Wages
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76%
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12%
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0%
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12%
|
100%
|
|
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Cleaning supplies
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100%
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0%
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0%
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0%
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100%
|
|
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Cleaning equipment depreciation
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73%
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0%
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0%
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27%
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100%
|
|
|
Vehicle expenses
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0%
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81%
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0%
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19%
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100%
|
|
|
Office expenses
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0%
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0%
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57%
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43%
|
100%
|
|
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President's compensation
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0%
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0%
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29%
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71%
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100%
|
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Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving Issues, and so on.
Required:
Question 1. Prepare the first-stage allocation of costs to the activity cost pools.
Question 2. Compute the activity rates for the activity cost pools.
Question 3. The company recently completed a 600 square foot carpet-cleaning Job at the Flying N Ranch-a 57-mile round-trip Journey from the company's offices In Bozeman. Compute the cost of this Job using the activity-based costing system.
Question 4. The revenue from the Flying N Ranch was $142.80 (600 square feet # $23.80 per hundred square feet).
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