Question

Problem 7-20 Evaluating the Profitability of Services [LO7-2, L07-3, LO7-4, LO7-5) 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 $22.50 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 Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 8,000 hundred square feet 116,000 miles 1,600 jobs idle capacity costs) None Not applicable The total cost of operating the company for the year is $358,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost 135,000 26, 000 19,000 30,000 69,000 79,000 $358,000 Resource consumption is distributed across the activities as follows Distribution of Resource Consumption Across Activities Cleaning Travel Carpets to Jobs Job Support Other Total 100% 100% 100% 100% 100% 100% 71% 100% 68% 124 17% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 32 15 42% 68% 85 옴 589 32 Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Answer 1

cleanin car peti 95850 aveto Job suppost other Jobs Total し6200 295035000 cleanin 6000 6000 220 tion | C19000 χ .65 6080 (9000 32) 4500 ecid 9000 vehi cle xpense o-ffice expense Poe seident Compen 25500 30000x1530000 8980 6000 S0ooDx.85) 40000 61000x58 25280 530q000 9000 X. oral cost3 40 41700 | 65300 |#6&30 | 358000 cteaning 1348000$16.85 Suppoit : 65 300 t60o40 cost of job 。 (6x16. 85) t(55 X. 35)+0x408 -tol.1 9. a5 46. 81 -6. 16

Revenua 135 les: cost. cleaning Supplies lot. taavet to job uppout 40. 81 customer Marairn &6. 16