Green Thumb, Inc., provides lawn care and landscaping services to commercial clients. Green Thumb uses activity-based costing to bid on jobs and to evaluate their profitability. Green Thumb reports the following annual costs:

Wages and salaries .........$ 300,000

Depreciation ............60,000

Supplies ..............100,000

Other overhead ..........240,000

Total overhead costs......... $ 700,000

John Gibson, controller of Green Thumb, has established four activity cost pools:

He estimates that Green Thumb’s costs are distributed to the activity- cost pools as follows.

Vista Office Park, a new development in a nearby community, has contacted Green Thumb to provide an estimate on landscape design and annual lawn maintenance. The job is estimated to require a single landscape design requiring 40 design hours in total and 250 direct labor- hours annually. Green Thumb has a policy of pricing estimates at 150% of allocated cost.

Required
1. Allocate Green Thumb’s costs to the activity- cost pools and determine the activity rate for each pool.
2. Estimate total cost for the Vista Office Park job.
3. How much should Green Thumb bid to perform the job?
4. Vista Office Park asks Green Thumb to give an estimate for providing its services for a 2- year period. What are the advantages and disadvantages for Green Thumb to provide a 2- yearestimate??

Transcribed Image Text:

Activity Cost Pool Estimating jobs Lawn care Landscape design Number of design hours Other Activity Measure Total Activity for the Year 250 estimates 10,000 direct labor-hours 500 design hours Number of job estimates Number of direct labor-hours Facility-sustaining costs that are not allocated to jobs Not applicable Wages and salaries Depreciation Supplies Other overhead Estimating Jobs 5% 10% 0% 15% Lawn Care 70% 65% 100% 50% Landscape DesignOther Total 10% | 100% 15% | 100% 0% | 100% 15% | 100% 15% 10% 096 20%