Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze

Question

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 af carpet cleaned. The current fee is $22.7o 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 remate ranches that require considerable travel time. The owner's daughter, home for the summer trom college, has suggested investigating this question using activity-based costing. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pooi s and their actvit ty measures appear below Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (oosts of id e capacity and Activity Measure Activity for the Year are feet Square feet cleaned (00s) Miles driven Number of jobs 13,500 hundred squ 180,000 miles 2,000 jbs ining costs) None Not applicable The total cost of operating the company for the year is $361,000, which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost 5 135,0o0 30,000 20 000 37.000 69,000 70,000 ??? Resource consumption is distributed across the activities as tollows: Distribution of Resource Consumption Across Activities

Explanation / Answer

Solution 1:

First stage allocation of cost to activity cost pools Particulars Total Cost Cleaning Carpets Travel to Jobs Job Support Others % Amount % Amount % Amount % Amount Wages $135,000.00 72% $97,200.00 11% $14,850.00 0% $0.00 17% $22,950.00 Cleaning Supplies $30,000.00 100% $30,000.00 0% $0.00 0% $0.00 0% $0.00 Cleaning Equipment depreciation $20,000.00 69% $13,800.00 0% $0.00 0% $0.00 31% $6,200.00 Vehicle Expenses $37,000.00 0% $0.00 76% $28,120.00 0% $0.00 24% $8,880.00 Office Expense $69,000.00 0% $0.00 0% $0.00 60% $41,400.00 40% $27,600.00 President's Compensation $70,000.00 0% $0.00 0% $0.00 26% $18,200.00 74% $51,800.00 Total $361,000.00 $141,000.00 $42,970.00 $59,600.00 $117,430.00

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