Question

Gallatin Carpet Cleaning is a smallI, 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 $22.35 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 for the Year 13,000 hundred square feet 127,000 miles 2,000 jobs Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Not applicable None The total cost of operating the company for the year is $355,000 which includes the following costs: $ 144,000 Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 28,000 18,000 30,000 63,000 72,000 $ 355,000 Total cost

Answer 1

Requirement 1					In $
	Cleaning Carpets	Travel to jobs	Job support	Other	Total
Wages	115200	20160		8640	144000
Cleaning supplies	28000				28000
Cleaning Equipment depreciation	11700			6300	18000
Vehicle expenses		25500		4500	30000
Office expenses			40320	22680	63000
President's compensation			18000	54000	72000
Total Cost	154900	45660	58320	96120	355000

Requirement 2
Activity cost pool
	Total Cost (a)	Activity occurred (b)	Activity rate (a/b)
Cleaning carpets	154900	13000 hundred sqr feet	11.92
Travel to jobs	45660	127000 miles	0.36
Job support	58320	2000 jobs	29.16

Requirement 3 Cost of the job
		Cost in $
Cleaning carpets	6 x $11.92	71.52
Travel to jobs	56 miles x $0.36	20.16
Job support	$29.16 per job	29.16
Total Cost of the job		120.84

Requirement 4
Customer margin-Activity Based	$
Sales	134.1
Costs:
Cleaning carpets	-71.52
Travel to jobds	-20.16
job support	-29.16
Customer margin	13.26