Reference no: EM132478711
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 $23.35 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 Activity Measure Activity for the Year
Cleaning carpets Square feet cleaned (00s) 12,500 hundred square feet
Travel to jobs Miles driven 270,500 miles
Job support Number of jobs 1,700jobs
Other (organization-sustaining costs and idle capacity costs) None Not applicable
The total cost of operating the company for the year is $359,000 which includes the following costs:
Wages $150,000
Cleaning supplies 32,000
Cleaning equipment depreciation 14,000
Vehicle expenses 29,000
Office expenses 56,000
President's compensation 78,000
Total cost $359,000
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 79% 11% 0% 10% 100%
Cleaning supplies 100% 0% 0% 0% 100%
Cleaning equipment depreciation 65% 0% 0% 35% 100%
Vehicle expenses 0% 78% 0% 22% 100%
Office expenses 0% 0% 64% 36% 100%
President's compensation 0% 0% 32% 68% 100%
Point 1: Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Question 1. Prepare the first-stage allocation of costs to the activity cost pools.
Question 2. Compute the activity rates for the activity cost pools.
Question 3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N Ranch-a 51-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system.
Question 4. The revenue from the Flying N Ranch was $93.40 (400 square feet @ $23.35 per hundred square feet). Calculate the customer margin earned on this job.