Gallatin Carpet Cleaning is a small, family-owned business operating out of Boze
ID: 2758153 • 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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
Prepare the first-stage allocation of costs to the activity cost pools.
The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 57.00-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 and final answers to 2 decimal places.)
The revenue from the Flying N ranch was $94.80 (4 hundred square feet at $23.70 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 $23.70 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
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
165,500
miles
Job support
Number of jobs
2,100
jobs
Other (costs of idle capacity and
organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $361,000, which includes the following costs:
Wages
$
143,000
Cleaning supplies
25,000
Cleaning equipment depreciation
9,000
Vehicle expenses
38,000
Office expenses
63,000
President’s compensation
83,000
Total cost
$
361,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets
Travel to Jobs
Job Support
Other
Total
Wages
76
%
13
%
0
%
11
%
100
%
Cleaning supplies
100
%
0
%
0
%
0
%
100
%
Cleaning equipment depreciation
68
%
0
%
0
%
32
%
100
%
Vehicle expenses
0
%
83
%
0
%
17
%
100
%
Office expenses
0
%
0
%
63
%
37
%
100
%
President’s compensation
0
%
0
%
26
%
74
%
100
%
Job support consists of receiving calls from potential customers at the home office, scheduling
jobs, billing, resolving issues, and so on.
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 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 57.00-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 and final answers to 2 decimal places.)
4.
The revenue from the Flying N ranch was $94.80 (4 hundred square feet at $23.70 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)
Required:Explanation / Answer
Solution:
Cleaning Carpets Travel to jobs Job support Other Total Wages 76% 108,680 13% 18,590 0% - 11% 15,730 100% 143,000 Cleaning supplies 100% 25,000 0 - 0 - 0 - 100% 25,000 Cleaning equipment depreciation 68% 6,120 0 - 0% - 32% 2,880 100% 9,000 Vehicle Expenses 0% - 83% 31,540 0% - 17% 6,460 100% 38,000 Office expenses 0% - 0 - 63% 39,690 37% 23,310 100% 63,000 President's compensation 0% - 0 - 26% 21,580 74% 61,420 100% 83,000 Total 139,800 50,130 61,270 109,800Related Questions
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