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 $22.05 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)	12,000 hundred square feet
Travel to jobs	Miles driven	46,500 miles
Job support	Number of jobs	1,800 jobs
Other (costs of idle capacity and   organization-sustaining costs)	None	Not applicable

  

The total cost of operating the company for the year is $335,000, which includes the following costs:

Wages	$135,000
Cleaning supplies	24,000
Cleaning equipment depreciation	12,000
Vehicle expenses	30,000
Office expenses	58,000
President's compensation	76,000
Total cost	$335,000

  

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	74%	13%	0%	13%	100%
Cleaning supplies	100%	0%	0%	0%	100%
Cleaning equipment depreciation	69%	0%	0%	31%	100%
Vehicle expenses	0%	82%	0%	18%	100%
Office expenses	0%	0%	64%	36%	100%
President's compensation	0%	0%	25%	75%	100%

  

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Requirement 1:

Prepare the first-stage allocation of costs to the activity cost pools. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

	Distribution of Resource Consumption Across Activity Cost Pools
	Cleaning Carpets	Travel to Jobs	Job Support	Other	Total
Wages	$	$	$	$	$
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
Total	$	$	$	$	$

  

Requirement 2:

Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Activity Cost Pool	Activity Rate
Cleaning carpets	$		per hundred square feet
Travel to jobs	$		per mile
Job support	$		per job

Requirement 3:

The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 55-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Activity Cost Pool	ABC Cost
Cleaning carpets	$
Travel to jobs	$
Job support	$
Total	$

Requirement 4:

The revenue from the Flying N ranch was $88.2 (4 hundred square-feet @ $22.05 per hundred square feet). Compute the margin from this job. (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Margin earned on job

$

Requirement 5:

What do you conclude concerning the profitability of the Flying N ranch job?

  

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

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

Answer 1

solution: travel O ther Totals cleaning carpet job support job wages cleaning supplies cleaning equipment depreciation vehicle expense office expense president compensation 74% 100% 69% 0% 0% 0% 13% 0% 0% 82% 0% 0% 0% 0% 0% 0% 64% 25% 13% 135000 0% 24000 31% 12000 18% 30000 36% 58000 75% 76000 1 )first stage allocations of costs to activity cost pools. job Other Totals cleaning carpet travel to support job 17550 0 99900 24000 8280 0 ol o wages** cleaning supplies cleaning equipment depreciation vehicle expense office expense president compensation total 24600 17550 135000 0 24000 3720 12000 5400 30000 20880 58000 57000 76000 104550335000 37120 19000 56120 132180 42150 i **First stage allocation = Total cost * percent for example wages in cleaning carpet = 135000*74%=99900

2) activity rate activity cost pool total activity a cleaning carpet travel to job job support cost b 132180 42150 56120 12000 46500 1800 activity rate a/b 11.02 per hundred sq ft 0.91 per mile 31.18 per job 3) cost of job Activity Cost Pool (b) Activity Rate Activity 11.02 0.91 31.18 Cleaning carpets Travel to jobs Job support Total cost of job 4 (a) (b) ABC Cost 4 4.08 55 50.05 1 31.18 125.31 4) customer margin report sales 88.20 cost Cleaning carpets Travel to jobs Job support total cost Margin earned on job 44.08 50.05 31.18 125.31 -37.11 5) What do you conclude concerning the profitability of the Flying N ranch job? Gallatin Carpet Cleaning appears to be losing money on the Flying N Ranchjob.