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	27,000	square feet of low maintenance beds
Caring for garden beds–high maintenance	$	58,380	21,000	square feet of high maintenance beds
Travel to jobs	$	5,200	18,000	miles
Customer billing and service	$	10,700	30	customers

Required:

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

Answer 1

Solution

Activity Cost Pool	Activity rate
Caring for lawn	$ 0.51	Per square feet of lawn
Caring for garden beds- low maintenance	$ 1.45	Per square feet of low maintenance beds
Caring for garden beds- High maintenance	$ 2.78	Per square feet of High maintenance beds
Travel to jobs	$ 0.29	Per miles
Customer billing and service	$ 356.67	Per customer

Working

Calculation of Activity rates
Activity Cost Pool	Cost driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Caring for lawn	Number of square feet of lawn	$    86,600.00	170,000	$                 0.51	Per square feet of lawn
Caring for garden beds- low maintenance	Number of square feet of low maintenance beds	$    39,200.00	27,000	$                 1.45	Per square feet of low maintenance beds
Caring for garden beds- High maintenance	Number of square feet of High maintenance beds	$    58,380.00	21,000	$                 2.78	Per square feet of High maintenance beds
Travel to jobs	Number of miles	$      5,200.00	18,000	$                 0.29	Per miles
Customer billing and service	Number of customer	$    10,700.00	30	$            356.67	Per customer