Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2412146 • Letter: G
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 of carpet cleaned. The current fee is $23.60 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 Heasure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 10,500 hundred square feet Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and 292,000 miles 2,100 jobs idle capacity costs) None Not applicable The total cost of operating the company for the year is $353,000 which includes the following costs Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 147,000 27,000 9,000 39,000 60,000 71,000 $ 353,000Explanation / Answer
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
(147000 * 73%)
=107310
(147000 * 14%)
=20580
0
(147000 * 13%)
=19110
147000
Cleaning Supplies
27000
0
0
0
27000
Cleaning Equipment depreciation
(9000 * 70%)
=6300
0
0
(9000 * 30%)
=2700
9000
Vehicle Exp
0
(39000 * 80%)
31200
0
(39000 * 20%)
=7800
39000
Other Exp
0
0
(60000 * 65%)
=39000
(60000 * 35%)
=21000
60000
President Compensation
0
0
(71000 * 30%)
=21300
(71300 * 70%)
=49700
71000
Total Cost
140610
51780
60300
100310
353000
(2)
Activity Cost Pools
Activity Rate
Cleaning Carpets
(140610/10500)
=13.39 per hundred sq ft
Travel to Jobs
(51780/292000)
=0.177 per mile
Job Support
(60300/2100)
=28.71 per job
(3)
Cleaning Carpets
(6 * 13.39)
=80.34
Travel to Jobs
(0.177 * 59)
=10.443
Job Support
28.71
Total cost
119.493
(4)
Revenue
141.60
(-) Cost
119.493
Customer Margin
22.107
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
(147000 * 73%)
=107310
(147000 * 14%)
=20580
0
(147000 * 13%)
=19110
147000
Cleaning Supplies
27000
0
0
0
27000
Cleaning Equipment depreciation
(9000 * 70%)
=6300
0
0
(9000 * 30%)
=2700
9000
Vehicle Exp
0
(39000 * 80%)
31200
0
(39000 * 20%)
=7800
39000
Other Exp
0
0
(60000 * 65%)
=39000
(60000 * 35%)
=21000
60000
President Compensation
0
0
(71000 * 30%)
=21300
(71300 * 70%)
=49700
71000
Total Cost
140610
51780
60300
100310
353000
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