Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2559523 • 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:
The total cost of operating the company for the year is $351,000 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.
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 200 square foot carpet-cleaning job at the Flying N Ranch—a 58-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 $45.70 (2 hundred square feet @ $22.85 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) 14,500 hundred square feet Travel to jobs Miles driven 430,000 miles Job support Number of jobs 2,100 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicableExplanation / Answer
1.
2.
3. Cost of the job = 2*9.1034 + 58*0.1197 = 18.21+6.95+29.01 = 54.17
4. Customer Margin = 45.70-54.17= (8.47)
Cleaning Carpets Travel to Jobs Job Support Other Total Wages 96560 20400 0 19040 136000 Cleaning supplies 31000 0 0 0 31000 Cleaning equipment depreciation 4440 0 0 1560 6000 Vehicle expenses 0 31080 0 5920 37000 Office expenses 0 0 34200 25800 60000 President’s compensation 0 0 26730 54270 81000 Total cost 132000 51480 60930 106590 351000Related Questions
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