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 $23.60 per hundred square feet. H ver, there is some question about whether the is actually making any money on jobs for some cust ticularly 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: ty Cost Pool Cleaning carpets Travel to jobs Job support Other (costs of idle capacity and organization-sustaining costs) Square feet cleaned (00s) Miles driven 12,000 hundred square feet 172,500 miles Number of jobs 2,000 jobs Not applicable The total cost of operating the company for the year is $337.000, which includes the following costs Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation $ 145,000 26,000 8,000 28,000 57,000 73,000 Total cost $ 337,000

Explanation / Answer

1) First stage allocation of cost to activity cost pools (Amounts in $)

2) Calculation of Activity rates (Amount in $)

3)   Calculation of cost of job (Amounts in $)

4) Calculation of customer margin (Amounts in $)

Overhead Cleaning Carpets Travel to Job Job Support Other Total Wages (72:15:0:13) 104,400 21,750 0 18,850 145,000 Cleaning Supplies (100:0:0:0) 26,000 0 0 0 26,000 Cleaning equipment depreciation (72:0:0:28) 5,760 0 0 2,240 8,000 Vehicle expenses (0:75:0:25) 0 21,000 0 7,000 28,000 Office expenses (0:0:61:39) 0 0 34,770 22,230 57,000 President's compensation (0:0:31:69) 0 0 22,630 50,370 73,000 Total 136,160 42,750 57,400 100,690 337,000

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