Question

PROBLEM 7-20 Evaluating the Profitability of Services L07-2, L07-3, L07-4, L07-5 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 $28 per hundred square feet. However, there is some question about whether the

Answer 1

Gallatin Carpet Cleanings 1. Prepare the first-stage allocation of costs to the activity cost pools. Cleaning Carpets 105000 40000 16000 Travel to Jobs 30000 Job Support Other 15000 Wages Cleaning Supplies Cleaning Equip.Depre. Vehicle Expenses Office Expenses President's Compensation Totals Total 150000 40000 20000 80000 60000 80000 430000 0 48000 4000 32000 33000 48000 132000 27000 32000 59000 161000 78000 2.Compute Activity Rates for activity cost pools Activity Cost Pool Cleaning Carpets Travel to Jobs Job Support Total Cost 161000 78000 59000 Activity for the year 20000 hundred sq feet 60000 miles 2000 jobs Activity Rate 8.05 per hundred sq. feet 1.30 per mile 29.50 per job 3.The cost for the Flying N Ranch job is computed as follows: Activity Cost Pool Cleaning Carpets Travel to Jobs Job Support Activity Rate 8.05 per hundred sq. 1.30 per mile 29.50 per job Activity 5 75 ABC Cost 40.25 97.50 29.50 167.25 Total 4.Customer margin earned for Flying Ranch 140 Customer Margin - Activity Based Costing Amounts per job Sales Costs: Cleaning Carpets 40.25 Travel to Jobs 97.50 Job Support 29.50 Customer Margin 167.25 -27.25 Flying Ranch is showing a loss.So this job is not recommended