Question: Please help me solve this question on Evaluating the Profitability of Services! Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana.
Please help me solve this question on Evaluating the Profitability of Services!
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 $23.30 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customersparticularly those located on remote ranches that require considerable travel time. The owners daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:

Resource consumption is distributed across the activities as follows:

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.




Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and Activity for the Year 13,500 hundred square feet Activity Measure Square feet cleaned (00s) Miles driven Number of jobs 242,000 miles 2,000 jobs idle capacity costs) None Not applicable The total cost of operating the company for the year is $361,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 150,000 22,000 12,000 37,000 59,000 81,000 $ 361,000
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