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 $22.10 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:
The total cost of operating the company for the year is $371,000, which includes the following costs:
| 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 |
429,500 |
miles |
| Job support |
Number of jobs |
1,800 |
jobs |
Other (costs of idle capacity and
organization-sustaining costs) |
None |
Not applicable |
Resource consumption is distributed across the activities as follows:
|
|
|
| Wages |
$ |
149,000 |
| Cleaning supplies |
|
25,000 |
| Cleaning equipment depreciation |
|
17,000 |
| Vehicle expenses |
|
32,000 |
| Office expenses |
|
66,000 |
| President's compensation |
|
82,000 |
|
|
|
| Total cost |
$ |
371,000 |
|
|
Distribution of Resource Consumption Across Activities
Cleaning Carpets |
Travel to Jobs |
Job Support |
Other |
Total |
| Wages |
74 |
% |
14 |
% |
0 |
% |
12 |
% |
100 |
% |
| Cleaning supplies |
100 |
% |
0 |
% |
0 |
% |
0 |
% |
100 |
% |
| Cleaning equipment depreciation |
67 |
% |
0 |
% |
0 |
% |
33 |
% |
100 |
% |
| Vehicle expenses |
0 |
% |
81 |
% |
0 |
% |
19 |
% |
100 |
% |
| Office expenses |
0 |
% |
0 |
% |
56 |
% |
44 |
% |
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.
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 4 hundred square foot carpet-cleaning job at the Flying N ranch-a 50.00-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 $88.40 (4 hundred square feet at $22.10 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)