Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2552564 • 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 $23.65 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 iobs Job support Other (organization-sustaining costs and Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 13,000 hundred square feet 354,500 miles 2,000 jobs idle capacity costs) None Not applicable The total cost of operating the company for the year is $364,000 which includes the following costs Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expense President's compensation Total cost $137,000 34,000 17,000 39,000 61,000 76,000 $364,000Explanation / Answer
STATEMENT SHOWING FIRST STAGE ALLOCATION OF COST TO ACTIVITY POOL BASIS OF Cleaning Travel Job Support Others Total APPORTION IN $ IN $ IN $ IN $ IN $ Wages and salaries 75:15:0:10 102,750 20,550 0 13,700 137,000 Cleaning supplies 100:0:0:0 34,000 0 0 0 34,000 Depreciation 70:0:0:30 11,900 0 0 5,100 17,000 Vehcle expennse 0:85:0:15 0 33,150 0 5,850 39,000 Office expense 0:0:60:40 0 0 36,600 24,400 61,000 President compensation 0:0:25:75 0 0 19,000 57,000 76000 TOTAL COST OF ACTIVITY 148,650 53,700 55,600 106,050 364,000 STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Cleaning 100 Sq. ft 148,650 13,000 11.43 Travel to Job Miles driven 53,700 354,500 0.15 Job Support Jobs 55,600 2,000 27.80 Cist assigned to Job Flying N rancnh: Cleaning (6 @ 11.43) 68.58 Travel to job (60 miles @0.15) 9 Job Support (1 job @ $27.80) 27.8 Total Cost of Job 105.38 Customer margin of Job: sales revenue (6 Hundred sq. ft @ 23.65) 141.9 Less: total cost assigned 105.38 Customer margin of Job: 36.52
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