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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
77
%
16
0
7
100
70
30
79
21
58
42
27
73
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
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