Bob's Yard Mowing
Bob'd Yard Moving provides yard cleaning services to its clients.
The company uses an activity-based costing system for its overhead costs.
The company has provided the following data from its activity-based costing system.
| Activity Cost Pool |
Total Cost |
Total Activity |
Unit |
Cost/unit |
| Mowing |
$645,576 |
72,700 |
hours |
$8.88 |
| Job Support |
$129,546 |
5,400 |
jobs |
$23.99 |
| Client Support |
$20,900 |
760 |
clients |
$27.50 |
| Other |
$110,000 |
|
|
*cost of idle capacity based on a normal capacity measure |
| |
$906,022 |
|
|
|
| Client |
jobs |
hours |
charge |
| Roessler family |
31 |
62 |
$1,620 |
|
$743.69 |
$550.56 |
$1,294.25 |
1) Compute the activity rates (i.e. cost per unit of activity) for all the activity cost pools.
2) Using the activity-based costing system, compute the customer margin for the Roessler Family
3) Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of mowing hours. Compute the margin for the Roessler Family.
4) The president of Bob's Yard Mowing asks you to explain your decision about how you handled the cost of idle capacity in your calculations above. Explain your reasoning to the president.
5) The president also asks you about possible cost savings that could be realized by reducing the total number of jobs by 50. Since the activity level for jobs will decrease, the president says that the savings must be calculated by multiplying the decline in jobs times the activity rate for job support. What is your response to the president?