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.

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??

  • CreatedJanuary 15, 2015
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