Question

Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below. Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high maintenance Travel to jobs Customer billing and service Activity Mease Square feet of Town Square feet of low maintenance beds Square feet of high maintenance beds Hiles Number of customers The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows: Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high waintenance Travel to jobs Customer billing and service Estimated Overhead Cost $ 78,600 $ 31,200 $ 49,140 $ 4,400 $ 9,100 Expected Activity 165,000 square feet of lawn 24,000 square feet of low maintenance beds 18,000 square feet of high maintenance beds 15.000 miles 26 customers Required: Compute the activity rate for each of the activity cost pools, (Round your answers to 2 decimal places.) Activity Rate Activity Cost Pool Caring for lawn Caring for garden beds low mainten Caring for garden beds high Travel to jobs Customer billing and service low maintenance beds of high maintenance beds

Answer 1

Ans. : Activity rate for each of the activity cost pools is as follows:

Activity rate for activity = Total estimated overhead cost /Total quantity of activity measure

* caring for lawn activity rate= 78600/165000

= 0.48 dollar per square feet of lawn

* caring for garden beds-low maintenance = 31200/24000

= 1.30 dollar per square ft.

* caring for garden beds - high maintenance = 49140/18000

= 2.73 dollar

* travel to jobs= 4400/15000

= 0.29 dollar per mile

* customer billing and services= 9100/26

= 350 dollar per customer.