Question: Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.35 per hundred square feet.
Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.35 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) | 10,000 | hundred square feet |
| Travel to jobs | Miles driven | 157,000 | miles |
| Job support | Number of jobs | 2,300 | jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | Not applicable |
The total cost of operating the company for the year is $352,000 which includes the following costs:
| Wages | $ 139,000 |
|---|---|
| Cleaning supplies | 25,000 |
| Cleaning equipment depreciation | 12,000 |
| Vehicle expenses | 35,000 |
| Office expenses | 63,000 |
| Presidents compensation | 78,000 |
| Total cost | $ 352,000 |
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 | 77% | 12% | 0% | 11% | 100% |
| Cleaning supplies | 100% | 0% | 0% | 0% | 100% |
| Cleaning equipment depreciation | 63% | 0% | 0% | 37% | 100% |
| Vehicle expenses | 0% | 81% | 0% | 19% | 100% |
| Office expenses | 0% | 0% | 63% | 37% | 100% |
| Presidents compensation | 0% | 0% | 27% | 73% | 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 53-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 $74.10 (600 square feet @ $12.35 per hundred square feet). Calculate the customer margin earned on this job.
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