Question

Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:

Activity Cost Pool	Activity Measure
Caring for lawn	Square feet of lawn
Caring for garden beds–low maintenance	Square feet of low maintenance beds
Caring for garden beds–high maintenance	Square feet of high maintenance beds
Travel to jobs	Miles
Customer billing and service	Number of customers

The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

  

Activity Cost Pool	Estimated Overhead Cost		Expected Activity
Caring for lawn	$	80,200	160,000	square feet of lawn
Caring for garden beds–low maintenance	$	32,800	23,000	square feet of low maintenance beds
Caring for garden beds–high maintenance	$	45,560	17,000	square feet of high maintenance beds
Travel to jobs	$	3,200	14,000	miles
Customer billing and service	$	6,700	34	customers

Required:

Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)

Answer 1

Calculation of Activity Rate
Activity Cost Pool	Estimated Overhead cost (A)	Activity Measure	Expected Activity (B)	Activity Rate (A/B)
Caring for lawn	80200	Square feet of lawn	160000	0.50
Caring for garden beds–low maintenance	32800	Square feet of low maintenance beds	23000	1.43
Caring for garden beds–high maintenance	45560	Square feet of high maintenance beds	17000	2.68
Travel to jobs	3200	Miles	14000	0.23
Customer billing and service	6700	Number of customers	34	197.06