Question

Gallatin Carpet Cleaning-the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.50 per hundred square feet.

Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)	10,000	hundred square feet
Travel to jobs	Miles driven	300,500	miles
Job support	Number of jobs	1,800	jobs

The total cost of operating the company for the year is $370,000

Wages	$	148,000
Cleaning supplies		28,000
Cleaning equipment depreciation		17,000
Vehicle expenses		38,000
Office expenses		63,000
President’s compensation		76,000
Total cost	$	370,000

Distribution of Resource Consumption Across Activities
	Cleaning Carpets		Travel to Jobs		Job Support		Other		Total
Wages	73	%	13	%	0	%	14	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	69	%	0	%	0	%	31	%	100	%
Vehicle expenses	0	%	79	%	0	%	21	%	100	%
Office expenses	0	%	0	%	63	%	37	%	100	%
President’s compensation	0	%	0	%	29	%	71	%	100	%

1. Prepare the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N Ranch—a 53-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.

4. The revenue from the Flying N Ranch was $94.00 (400 square feet @ $23.50 per hundred square feet). Calculate the customer margin

Answer 1

1
	Cleaning Carpets	Travel to Jobs	Job support	Other	Total
Wages	108040	19240	0	20720	148000
Cleaning supplies	28000	0	0	0	28000
Cleaning equipment depreciation	11730	0	0	5270	17000
Vehicle expenses	0	30020	0	7980	38000
Office expense	0	0	39690	23310	63000
President’s compensation	0	0	22040	53960	76000
Total cost	147770	49260	61730	111240	370000
2
Activity Cost Pool	Activity Rate
Cleaning carpets	14.78	per hundred square feet	=147770/10000
Travel to jobs	0.16	per mile	=49260/300500
Job support	34.29	per job	=61730/1800
3
Activity Cost Pool	Activity Rate	Activity	Total
Cleaning carpets	14.78	4	59.12
Travel to jobs	0.16	53	8.48
Job support	34.29	1	34.29
			101.89
Cost of this job $101.89
4
	Customer Margin—Activity-Based Costing
Sales		94.00
Costs:
Cleaning carpets	59.12
Travel to jobs	8.48
Job support	34.29	101.89
Customer margin		-7.89
Note: If activity rates are not rounded off Part 3 and 4 will be:
Activity Cost Pool	Activity Rate	Activity	Total
Cleaning carpets	14.78	4	59.11
Travel to jobs	0.16	53	8.69
Job support	34.29	1	34.29
			102.09
Cost of this job $102.09
4
	Customer Margin—Activity-Based Costing
Sales		94.00
Costs:
Cleaning carpets	59.11
Travel to jobs	8.69
Job support	34.29	102.09
Customer margin		-8.09