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 $22.15 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) | 8,500 | hundred square feet | ||
| Travel to jobs | Miles driven | 279,000 | miles | ||
| Job support | Number of jobs | 2,000 | jobs | ||
| Other (costs of idle capacity and organization-sustaining costs) |
None | Not applicable | |||
The total cost of operating the company for the year is
$346,000, which includes the following costs:
| Wages | $ | 147,000 | |
| Cleaning supplies | 23,000 | ||
| Cleaning equipment depreciation | 10,000 | ||
| Vehicle expenses | 31,000 | ||
| Office expenses | 61,000 | ||
| President’s compensation | 74,000 | ||
| Total cost | $ | 346,000 | |
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 | 76 | % | 13 | % | 0 | % | 11 | % | 100 | % | |||||||||||
| Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % | |||||||||||
| Cleaning equipment depreciation | 69 | % | 0 | % | 0 | % | 31 | % | 100 | % | |||||||||||
| Vehicle expenses | 0 | % | 76 | % | 0 | % | 24 | % | 100 | % | |||||||||||
| Office expenses | 0 | % | 0 | % | 65 | % | 35 | % | 100 | % | |||||||||||
| President’s compensation | 0 | % | 0 | % | 30 | % | 70 | % | 100 | % | |||||||||||
Job support consists of receiving calls from potential customers at
the home office, scheduling
jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)
3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 58.00-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 intermediate and final answers to 2 decimal places.)
4. The revenue from the Flying N ranch was $88.60 (4 hundred square feet at $22.15 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)
1)
| Cleaning Carpets | Travel to Jobs | Job Support | Other | Total | |
| Wages | 111,720.00 | 19,110.00 | - | 16,170.00 | 147,000.00 |
| Cleaning supplies | 23,000.00 | - | - | - | 23,000.00 |
| Cleaning equipment depreciation | 6,900.00 | - | - | 3,100.00 | 10,000.00 |
| Vehicle expenses | - | 23,560.00 | - | 7,440.00 | 31,000.00 |
| Office expenses | - | - | 39,650.00 | 21,350.00 | 61,000.00 |
| President’s compensation | - | - | 22,200.00 | 51,800.00 | 74,000.00 |
| 141,620.00 | 42,670.00 | 61,850.00 | 99,860.00 | 346,000.00 |
2)
| Activity Cost Pool | Activity Rate | |
| Cleaning Carpets | 16.66 | per hundred square feet |
| Travel to Jobs | 0.15 | Per Mile |
| Job Support | 30.93 | Per Job |
3)
| Cleaning Carpets | 66.64 |
| Travel to Jobs | 8.87 |
| Job Support | 30.93 |
| 106.44 |
4)
| Gallatin Carpet Cleaning | ||
| Customer Margin—Activity-Based Costing | ||
| Amounts per Job | ||
| Sales | 88.6 | |
| Costs : | ||
| Cleaning Carpets | 66.64 | |
| Travel to Jobs | 8.87 | |
| Job Support | 30.93 | |
| 106.44 | ||
| Customer margin | - 17.84 | |
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services,...
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 $22.10 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...
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 $22.15 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...
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 $23.25 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...
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 $23.10 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...
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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 $23.20 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...
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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 $22.75 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...