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 of carpet cleaned. The current fee is $24.05 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below: Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (costs of idle capacity and organization-sustaining Activity Measure Activity for the Year Square feet cleaned (00s) Miles driven Number of jobs 11,000 hundred square 60,500 miles 1,800 jobs costs) None The total cost of operating the company for the year is $327,000, which includes the following costs Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses 143,000 22,000 7,000 26,000 56,000 73,000 Total cost Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Total Carpets 72% 100% 72% 0% 0% 0% Travel to Jobs 10% 096 096 75% 096 096 Job Support Other 18% 0% 28% 25% 42% 71% 100% 100% 100% 100% 100% 100% 0% Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses 0% 58% 29% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Explanation / Answer

1. perform the First Stage Allocation of Cost to the activity Cost pool, Description Cleaning Carpets Travel To Jobs Job Support other Total Wages $102,960 $14,300 $0 $25,740 $143,000 Cleaning Supplies $22,000 $0 $0 $0 $22,000 Cleaning Equipment Depreciation $5,040 $0 $0 $1,960 $7,000 Vehicle Expense $0 $19,500 $0 $6,500 $26,000 Office Expense $0 $0 $32,480 $23,520 $56,000 President's Compensation $0 $0 $21,170 $51,830 $73,000 Total Cost $130,000 $33,800 $53,650 $109,550 $327,000 2. Computation of activity Rate for each Cost Pool Activity Cost Pool Cost Pool No of Activity Activity Rate Activity measure Cleaning Carpets $130,000 11000 $11.82 Hundred Sq. Feet Travel To Jobs $33,800 60500 $0.56 Miles Job Support $53,650 1800 $29.81 Jobs 3. Computation of Cost of Job for 400 Sq. Feet Description Amount Cleaning Carpets ($11.82*4) $47.28 Travel To Jobs ($0.56*55) $30.80 Job Support ($29.81*1) $29.81 Total Cost of the Job $107.89 4. Computation of Margin Earned on Flying n Ranch Description Amount Revenue $96.20 Total Cost of the Job $107.89 Net Margin ( Loss) -$11.69

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