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 $22.1 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) 12,000 hundred square feet
-Travel to jobs Miles driven 51,500 miles
-Job support Number of jobs 2,000 jobs
-Other None Not applicable
(costs of idle capacity and
organization-sustaining costs)
The total cost of operating the company for the year is $362,000, which includes the following costs:
Wages $141,000
Cleaning supplies 22,000
Cleaning equipment depreciation 16,000
Vehicle expenses 31,000
Office expenses 70,000
President's compensation 82,000
Total cost $362,000
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 71% 11% 0% 18% 100% Cleaning supplies 100% 0% 0% 0% 100%
Cleaning equipment 70% 0% 0% 30% 100%
Vehicle expenses 0% 84% 0% 16% 100%
Office expenses 0% 0% 61% 39% 100%
President's compensation 0% 0% 29% 71% 100%
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
1. Prepare the first-stage allocation of costs to the activity cost pools.
Distribution of Resource Consumption Across Activity Cost Pools
Cleaning Carpets Travel to Jobs Job Support Other Total
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
Total
2. Compute the activity rates for the activity cost pools.
Activity Cost Pool Activity Rate
Cleaning carpets _____ per hundred square feet
Travel to jobs _____ per mile
Job support _____ per job
3. The company recently completed a 6 hundred square foot carpet-cleaning job at the Flying N ranch-a 60-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 answers to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)
Activity Cost Pool ABC Cost
Cleaning carpets
Travel to jobs
Job support
Total
4. The revenue from the Flying N ranch was $132.6 (6 hundred square-feet @ $22.1 per hundred square feet). Compute the margin from this job.