Benny Company provides housecleaning services to its clients. The company uses a
ID: 2758071 • Letter: B
Question
Benny Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
Activity Cost Pool
Total Cost
Total Activity
Cleaning
$101,574
16,200
hours
Job support
32,724
1,800
jobs
Client support
5,472
320
clients
Other
100,000
Not applicable
Total
$239,770
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Smith family, requested 32 jobs during the year that required a total of 192 hours of housecleaning. For this service, the client was charged $2,200.
Required:
a. Using the activity-based costing system, compute the client margin for the Smith family. Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to clients on the basis of cleaning hours. Compute the margin for the Smith family. Round off all calculations to the nearest whole cent.
Activity Cost Pool
Total Cost
Total Activity
Cleaning
$101,574
16,200
hours
Job support
32,724
1,800
jobs
Client support
5,472
320
clients
Other
100,000
Not applicable
Total
$239,770
Explanation / Answer
Solution-a
Calculation-
Cleaning = 192 hours*$6.27 per hour = $1,203.84
Job support = 32 jobs*$18.18 per job = $581.76
Client support =1 client × $17.10 per client = $17.10
Solution-b
Predetermined overhead rate = $239,770 / 16,200 hours = $14.80 per hour
*192 hours*$14.80 per hour = $2,841.60
Client charges $2,200 Costs: Cleaning $1,203.84 Job support $581.76 Client support $17.10 $1,802.70 Customer margin $397.30Related Questions
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