Gallatin carpet cleaning is a small family

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Reference no: EM13954595

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, 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       

  Cleaning carpets

Square feet cleaned (00s)

10,500

hundred square feet

  Travel to jobs

Miles driven

325,500

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 $365,000, which includes the following costs:




  Wages

$

148,000   

  Cleaning supplies


21,000   

  Cleaning equipment depreciation


12,000   

  Vehicle expenses


40,000   

  Office expenses


69,000   

  President's compensation


75,000   




  Total cost

$

365,000   




Resource consumption is distributed across the activities as follows:

 Distribution of Resource Consumption Across Activities


Cleaning Carpets

Travel to Jobs

Job Support

Other

Total

  Wages

77

%

16

%

0

%

7

%

100

%

  Cleaning supplies

100

%

0

%

0

%

0

%

100

%

  Cleaning equipment depreciation

70

%

0

%

0

%

30

%

100

%

  Vehicle expenses

0

%

79

%

0

%

21

%

100

%

  Office expenses

0

%

0

%

58

%

42

%

100

%

  President's compensation

0

%

0

%

27

%

73

%

100

%

1. Prepare the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch-a 58.00-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system

Reference no: EM13954595

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