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 $23.65 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, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below: Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Activity for the Year 10,000 hundred square feet 60,500 miles 2,000 jobs Miles driven Number of jobs Not applicable None The total cost of operating the company for the year is $349,000 which includes the following costs: 147,000 Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses office expenses President's compensation 22,000 13,000 35,000 62,000 70,000 Total cost 349,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities cleaning Carpets 73% Travel Job to Jobs Other Total Support 0% 0% 100% 11% Wages cleaning supplies Cleaning equipment depreciation Vehicle expenses 16% 100% 0% 0% 35% 24% 40% 100% 65% 0% 0% 100% 76% 0% 100% Office expenses 60% 28% 0% 0% 100% President's compensation 0% 0% 72% 100%

Answer 1

Wages	147000
Cleaning Supplies	22000
Cleaning Equipment Depreciation	13000
Vehicle Expenses	35000
Office Expenses	62000
President's Compensation	70000
Total Cost	349000
Distribution
	Leaning Carpets	Travel to Jobs	Job Support	Other	Total
Wages	73%	11%	0%	16%	100%
Cleaning Supplies	100%	0%	0%	0%	100%
Cleaning Equipment Depreciation	65%	0%	0%	35%	100%
Vehicle Expenses	0%	76%	0%	24%	100%
Office Expenses	0%	0%	60%	40%	100%
President's Compensation	0%	0%	28%	72%	100%
1.Cost Allocation
	Leaning Carpets	Travel to Jobs	Job Support	Other	Total
Wages	107,310	16,170	-	23,520	147,000
Cleaning Supplies	22,000	-	-	-	22,000
Cleaning Equipment Depreciation	8,450	-	-	4,550	13,000
Vehicle Expenses	-	26,600	-	8,400	35,000
Office Expenses	-	-	37,200	24,800	62,000
President's Compensation	-	-	19,600	50,400	70,000
Total	137,760	42,770	56,800	111,670	349,000
2.Activity Rate = Overhead/Driver
Leaning Carpets	13.78
Travel to Jobs	0.71
Job Support	28.40
Cost	$176.78
Customer Margin	$12.42