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	$	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

Answer 1

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