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?