Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2535090 • 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 $22.85 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 Cost Pool Cleaning carpets Travel to jobs Job support Other (o Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 11,000 hundred square feet 131,000 miles 1,700 jobs ining costs and idle capacity costs Not applicable The total cost of operating the company for the year is $342,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost S 136,000 28,000 10,000 40,000 56,000 72,000 S 342,000 Resource consumption is distributed across the activities as follows Distribution of Resource Consumption Across Activities Cleaning Travel to CarpetsJobsJob Support Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's 13% 100% 65% 0% 0% 0% 15% 0% 0% 85% 0% 0% 0% 0% 0% 0% 56% 3340 Other 12% 0% 35% 15% 44% Total 100% 100% 100% 100% 100% 100% ensation Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.Explanation / Answer
Answer 1. Activity Cost Pools Cleaning Carpets Travel to Jobs Job Support Other Totals Production Department Wages 99,280 20,400 - 16,320 136,000 Cleaning Supplies 28,000 - - - 28,000 Cleaning Equipment Depreciation 6,500 - - 3,500 10,000 Vehicle Expenses - 34,000 - 6,000 40,000 General Administrative Office Expenses - - 31,360 24,640 56,000 Organization Sustaining President's Compensation - - 23,760 48,240 72,000 Total 133,780 54,400 55,120 98,700 342,000 Activity Rates Activity Cost Pools Total Cost Total Activity Activity Rate Cleaning Carpets 133,780 11,000 Hundred Sq Ft 12.16 Per hundred Sq Ft Travel to Jobs 54,400 131,000 miles 0.42 Per Mile Job Support 55,120 1,700 jobs 32.42 Per Job Other 98,700 None N/A N/A 342,000 Answer 2. First Stage Allocations to Activity Cost pools Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total Wages and salaries 243,600 40,600 81,200 40,600 406,000 Disposal fees 475,800 - 317,200 - 793,000 Equipment depreciation 38,400 4,800 19,200 33,600 96,000 On-site supplies 40,600 11,600 5,800 - 58,000 Office expenses 28,000 98,000 70,000 84,000 280,000 Licensing and insurance 150,600 - 251,000 100,400 502,000 Total Cost 977,000 155,000 744,400 258,600 2,135,000 Answer 2. Computation of Activity Rate Activity Cost Pools Total Cost Activity Driver Activity Rate Removing Asbestos 977,000 1000 thousand sq. feet 977 Per thousand sq. feet Estimating and Job Setup 155,000 500 jobs 310 per job Working on Nonroutine Jobs 744,400 100 non routine job 7,444 per non routine job Other 258,600 Total 2,135,000 Answer 3 a. Routine 1000 Square foot asbestos removal Job Calculation of Total Cost of the Job Removing Asbestos 977 Estimating and Job Setup 310 Total Cost 1,287 Avg. cost per thousand square feet 1,287 Answer 3 b. Routine 2000 Square foot asbestos removal Job Calculation of Total Cost of the Job Removing Asbestos 1,954 Estimating and Job Setup 310 Total Cost 2,264 Avg. cost per thousand square feet 1,132 Answer 3 c. Nonroutine 2,000-square-foot asbestos removal job Calculation of Total Cost of the Job Removing Asbestos 1,954 Estimating and Job Setup 310 Working on Nonroutine Jobs 7,444 Total Cost 9,708 Avg. cost per thousand square feet 4,854
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