1. Prepare the first-stage allocation of costs to the activity cost pools. 2. Co
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Question
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools.
3. The company recently completed a 600 square foot carpet-cleaning job at the Flying N ranch—a 52-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.
4. The revenue from the Flying N ranch was $137.70 (600 square feet @ $22.95 per hundred square feet). Calculate the customer margin earned on this job.
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 $22.95 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 jobs Job support Other (organization-sustaining costs and Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 7,000 hundred square feet 266,500 miles 1,800 jobs idle capacity costs) None Not applicable The total cost of operating the company for the year is $367,000 which includes the following costs $ 144,000 26,000 17,000 38,000 60,000 82,000 $ 367,000 Wages Cleaning supplies Cl eaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost Resource consumption is distributed across the activities as follows Distribution of Resource Consumption Across Activities Cleaning Travel Carpets to Jobs Job Total 100% 100% 100% 100% 100% 100% Support Other Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 79% 100% 72% 0% 15% 0% 0% 79% 0% 0% 0% 0% 60% 34% 6% 0% 28% 21 408 669 0% 0%Explanation / Answer
1 Cleaning Carpets Travel to Jobs Job Support Other Total Wages 79% 15% 0% 6% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 72% 0% 0% 28% 100% Vehicle expenses 0% 79% 0% 21% 100% Office expenses 0% 0% 60% 40% 100% President's compensation 0% 0% 34% 66% 100% Cleaning Carpets Travel to Jobs Job Support Other Total Wages 113,760 21,600 - 8,640 $ 144,000 Cleaning supplies 26,000 - - - $ 26,000 Cleaning equipment depreciation 12,240 - - 4,760 $ 17,000 Vehicle expenses - 30,020 - 7,980 $ 38,000 Office expenses - - 36,000 24,000 $ 60,000 President's compensation - - 27,880 54,120 $ 82,000 Total Cost 152,000 51,620 63,880 99,500 $ 367,000 According to the data in the problem, 79% of the wages cost of $144,000 is attributable to activities related to Cleaning Carpets. $144,000 × 79% = $113,760. Other entries in the table are determined in a similar manner. 2 (a) (b) (a) ÷ (b) Activity Cost Pool Total Cost Total Activity Activity Rate Cleaning Carpets 152,000 7,000 hundred square feet 21.71 per hundred square feet Travel to Jobs 51,620 266,500 Miles 0.19 per mile Job Support 63,880 1,800 jobs 35.49 per job 3 Activity Cost Pool Activity Rate x Activity # ABC Cost Cleaning Carpets 21.71 6 130.26 Travel to Jobs 0.19 52 9.88 Job Support 35.49 1 35.49 Total 175.63 4 Gallatin Carpet Company Customer Margin-Activity Based Costing Amounts per Job Sales $137.70 Costs: Cleaning Carpets 130.26 Travel to Jobs 9.88 Job Support 35.49 175.63 Customer Margin(Loss) ($37.93)
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