Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2552999 • 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 $22.75 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:
The total cost of operating the company for the year is $361,000 which includes the following costs:
Resource consumption is distributed across the activities as follows:
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)
3. The company recently completed a 600 square foot carpet-cleaning job at the Flying N Ranch—a 60-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate calculations and final answer to 2 decimal places.)
4. The revenue from the Flying N Ranch was $136.50 (600 square feet @ $22.75 per hundred square feet). Calculate the customer margin earned on this job. (Round your intermediate calculations and final answers to 2 decimal places.)
Activity Cost Pool Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (00s) 13,500 hundred square feet Travel to jobs Miles driven 142,000 miles Job support Number of jobs 1,600 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicableExplanation / Answer
Solution:
Part 1 --- First Stage Allocation of Costs to the activity cost pools
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
$104,120
(137000*76%)
$19,180
(137000*14%)
$0
$13,700
(137000*10%)
$137,000
Cleaning supplies
$26,000
$0
$0
0
$26,000
Cleaning equipment depreciation
$8,160
(12000*68%)
$0
$0
$3,840
(12000*32%)
$12,000
Vehicle expenses
$0
$31,600
(40,000*79%)
$0
$8,400
(40000*21%)
$40,000
Office expenses
$0
$0
$38,080
(68000*56%)
$29,920
(68000*44%)
$68,000
President’s compensation
$0
$0
$20,280
(78000*26%)
$57,720
(78000*74%)
$78,000
Total
$138,280
$50,780
$58,360
$113,580
$361,000
Part 2 --- activity rates for the activity cost pools
Activity Cost Pool
Expected Manufacturing Overhead Costs (A)
Expected Activity Cost Driver (B)
Activity Rate (C = A/B)
Cleaning Carpets
$138,280
13,500
hundred square feet
$10.24
per hundred square feet
Travel to Jobs
$50,780
142000
miles
$0.36
per mile
Job Support
$58,360
1600
Jobs
$36.48
per job
Other
$113,580
NA
NA
$361,000
Part 3 -- - the cost of this job using the activity-based costing system
Activity Usage (A)
Activity Rate (B)
Cost Assigned
(A*B)
Cleaning Carpet
6
hundred square feet
$10.24
$61.44
Travel to Job
60
Miles
$0.36
$21.60
Job Support
1
Job
$36.48
$36.48
Total Cost
$119.52
Part 4 -- customer margin earned on this job
Revenue from Job
$136.50
Cost Assigned to Job (as per part 3)
$119.52
Customer Margin Earned on this Job
$16.98
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
$104,120
(137000*76%)
$19,180
(137000*14%)
$0
$13,700
(137000*10%)
$137,000
Cleaning supplies
$26,000
$0
$0
0
$26,000
Cleaning equipment depreciation
$8,160
(12000*68%)
$0
$0
$3,840
(12000*32%)
$12,000
Vehicle expenses
$0
$31,600
(40,000*79%)
$0
$8,400
(40000*21%)
$40,000
Office expenses
$0
$0
$38,080
(68000*56%)
$29,920
(68000*44%)
$68,000
President’s compensation
$0
$0
$20,280
(78000*26%)
$57,720
(78000*74%)
$78,000
Total
$138,280
$50,780
$58,360
$113,580
$361,000
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