Question: Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.45 per hundred square feet.
Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.45 per hundred square feet. However, there is some question about whether the company is making a profit on jobs requiring considerable travel time. The owners daughter suggested answering this question by designing an activity-based costing system using the information shown below: Activity Cost Pool Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (00s) 11,500 hundred square feet Travel to jobs Miles driven 149,500 miles Job support Number of jobs 2,200 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicable The total cost of operating the company for the year is $363,000 which includes the following costs: Wages $ 145,000 Cleaning supplies 21,000 Cleaning equipment depreciation 17,000 Vehicle expenses 34,000 Office expenses 64,000 Presidents compensation 82,000 Total cost $ 363,000 She distributed these operating costs across her four activities as follows: Distribution of Resource Consumption Across Activities Cleaning Carpets Travel to Jobs Job Support Other Total Wages 78% 12% 0% 10% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 64% 0% 0% 36% 100% Vehicle expenses 0% 83% 0% 17% 100% Office expenses 0% 0% 64% 36% 100% Presidents compensation 0% 0% 25% 75% 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. Required: Prepare the first-stage allocation of costs to the activity cost pools. Compute the activity rates for the activity cost pools. The company recently completed a 600-square-foot carpet-cleaning job at the Flying N Rancha 58-mile round-trip from the companys home office. Compute the cost of this job using the activity-based costing system. The revenue from the Flying N Ranch was $74.70 (600 square feet @ $12.45 per hundred square feet). Calculate the customer margin earned on this job
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