1. Gallatin Carpet Cleaning has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $12.95 per hundred square feet. However, there is some question about whether the company is making a profit on jobs requiring considerable travel time. The owner’s 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) | 9,500 | hundred square feet |
| Travel to jobs | Miles driven | 370,000 | miles |
| Job support | Number of jobs | 2,400 | jobs |
| Other (organization-sustaining costs and 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 | $ 149,000 |
|---|---|
| Cleaning supplies | 23,000 |
| Cleaning equipment depreciation | 17,000 |
| Vehicle expenses | 36,000 |
| Office expenses | 66,000 |
| President’s compensation | 70,000 |
| Total cost | $ 361,000 |
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 | 62% | 0% | 0% | 38% | 100% |
| Vehicle expenses | 0% | 80% | 0% | 20% | 100% |
| Office expenses | 0% | 0% | 61% | 39% | 100% |
| President’s 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:
The revenue from the Flying N Ranch was $25.90 (200 square feet @ $12.95 per hundred square feet). Calculate the customer margin earned on this job.
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 200-square-foot carpet-cleaning job at the Flying N Ranch—a 53-mile round-trip from the company’s home office. Compute the cost of this job using the activity-based costing system.
