Question

In: Accounting

Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for...

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 $ 86,600 170,000 square feet of lawn
Caring for garden beds–low maintenance $ 39,200 23,000 square feet of low maintenance beds
Caring for garden beds–high maintenance $ 47,260 17,000 square feet of high maintenance beds
Travel to jobs $ 5,200 14,000 miles
Customer billing and service $ 10,700 38 customers

Solutions

Expert Solution

Answer-

     Computation of activity rate for each of the activity cost pools

Activity Cost Pool

Estimated overhead cost $

Expected Activity

Calculation

Activity Rate

Caring for lawn                      

     86600

square feet of lawn

$86600/170000

$.51 per square foot of lawn

Caring for garden beds-low maintenance

      39200

square feet of low maintenance beds

$39200/23000

$1.70 per square foot of low maintenance beds

Caring for garden beds-       

high maintenance

      47260

square feet of high maintenance beds

$47260/17000

$2.78 per square foot of high maintenance beds

Travel to jobs

     5200

   miles

$5200/14000

$0.37 per mile

Customer billing                 

and service                     10700                   customers              $10700/38   $282 per customer   

Where

Activity Rate =   Estimated Overhead Cost $ / Expected Activity


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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...
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for...
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...
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for...
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...
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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...
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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...
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