Question

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 $23.4 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 for the Year 7,500 hundred square feet Activity Cost Pool Activity Measure Cleaning carpets Travel to jobs Square feet cleaned (00s) Miles driven Number of jobs 47000 miles 1,600 jobs Job support Other (costs of idle capacity and organization-sustaining costs) Not applicable None The total cost of operating the company for the year is $351,000, which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses $149,000 25,000 8,000 27,000 68,000 74,000 Office expenses President's compensation $351,000 Total cost Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Carpets 74% Travel to Jobs Job Support 0 % Other Total 12% 14% 100% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses 100% 0% 0% 0% 100% 68% 0% 0 % 32% 100% 0 % 83% 0 % 17% 100% 0 % 0% 58% 42% 100% President's compensation 0 % 0 % 29% 71 % 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. 3. value Required information 10.00 points Requirement 1: Prepare the first-stage allocation of costs to the activity cost pools. (Leave no cells blank - be certain to enter "0" whe rever required. Omit the "$" sign in your response.) Distribution of Resource Consumption Across Activity Cost Pools Job Support Cleaning Carpets Travel to Jobs 110260 Total Other 149000 17880 20860 $ 0 Wages Cleaning supplies 25000 0 0 25000 5440 8000 0 0 2560 Cleaning equipment depreciation 4590 27000 Vehicle expenses 0 22410 0 Office expenses 0 0 39440 28560 68000 0 21460 52540 74000 0 President's compensation S60900 140700 109110 351000 40290 Total

Answer 1

3.

Activity Cost Pool	ABC Cost
Cleaning carpets (4 x $18.76)	75.04
Travel to jobs (57 x $0.86)	49.02
Job support	38.06
Total $	162.12

4. Margin earned on job = Revenue - Total job cost = $93.60 - $162.12 = $-68.52

5. Gallatin Carpet Cleaning appears to be losing money on the Flying N Ranch job.