Reference no: EM132592544

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow. Assume PetSmart, Inc. expects to incur $380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

Estimated Quantity

Activity                  Estimated Cost                Allocation Base                    of Allocation Base

Admission                  $ 60,000                     Number of admissions                20,000

Cleaning                     240,000                    Cleaning direct labor hours           80,000

Grooming                     80,000                       Grooming direct labor hours          4,000

Total indirect costs        $ 380,000

Question 1: Calculate the predetermined overhead allocation rate for each activity.

Question 2: Assume a customer brought in Sophie, a beagle, for Top Dog service. PetSmart used the following resources: Allocation Base Number of admissions Cleaning direct labor hours Grooming direct labor hours Sophie, Beagle 1 1 0.5 Determine the total cost of the Top Dog service for Sophie assuming the total direct materials cost was $3.50 and the total direct labor cost was $12 per DLHr.

Question 3: If PetSmart desires a 30% target operating income after covering all its costs, what would PetSmart have to charge the customer to achieve that operating income?