Problem:
As You Like It Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer’s lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low- maintenance beds ( mainly ordinary trees and shrubs) or high-maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:
Activity Cost Pool Activity Measure
Caring for lawn Square feet of Lawn
Caring for garden beds-low maintenance Square feet of low-maintenance beds
Caring for garden beds-high maintenance Square feet of high-maintenance bed
Travel to jobs Miles
Customer billing and service Number of customers
The company has already carried out its first-stage allocations of costs. The company’s annual costs and activities are summarized as follows:
Activity Cost Pool Estimated Expected Activity
Overhead
Costs
Caring for lawn............... $77,400 180,000 square feet of lawn
Caring for garden beds-
low maintenance......... $30,000 24,000 square feet of low- maintenance beds
Caring for garden beds-
High maintenance........ $57,000 18,000 square feet of high- maintenance beds
Travel to jobs................... $4,200 15,000 miles
Customer billing and service.. $8,700 30 customers
Required:
Compute the activity rate for each of the activity cost pools and show all work.