Question
In: Accounting
Emerson Evergreen, a landscaping services company, uses an activity-based costing system for its overhead costs. The...
Emerson Evergreen, a landscaping services company, uses an
activity-based costing system
for its overhead costs. The company has provided the following data
from its activity-based
costing system.
Activity Cost Pool Total Cost Total Activity
Landscaping $101,574 16,200 hours
Job support 32,724 1,800 jobs
Client support. 5,472 320 clients
Other 100,000 Not applicable
Total $239,770
The "Other" activity cost pool consists of the costs of idle
capacity and organization-sustaining
costs.
During the year, the Gallimore family requested 32 jobs that
required a total of 192 hours of
landscaping. For this service, the Gallimore family was charged
$2,200.
Required:
a. Using the activity-based costing system, compute the client
margin for the Gallimore family.
Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing
system in which ALL costs
are allocated to clients on the basis of landscaping hours. Compute
the margin for the Gallimore
family. Round off all calculations to the nearest whole cent.
Solutions
Expert Solution
a) Using the Activity based costing system client margin is $ 397.30
Working:
| Activity cost pool | Total cost $ | Total Activity | |
| Landscaping | 101574 | 16200 | Hours |
| Job Support | 32724 | 1800 | Jobs |
| Client Support | 5472 | 320 | clients |
| Other | 100000 | NA | Not to be considered |
| Total Cost | 239770 | ||
| Gallimore Family Order | Unit cost | Unit | Total Cost($) |
| No. of Jobs (32724/1800)Job support | 18.18 | 32 | 581.76 |
| Total Hours(101574/16200)Landscaping | 6.27 | 192 | 1203.84 |
| Client support(5472/320) | 17.1 | 1 | 17.1 |
| Total Variable cost | 1802.7 | ||
| Gallimore family charged | 2200 | ||
| Client Margin(2200-1802.70) | 397.30 |
b) Assuming that company follow Traditional costing system it will be a negative margin -$641.72
Working:
| Traditional costing system | Total cost $ | Total Hours | Per Hour cost $ |
| Landscaping | 101574 | ||
| Job Support | 32724 | ||
| Client Support | 5472 | ||
| Other | 100000 | ||
| Total Cost | 239770 | 16200 | 14.80 |
| Total Hours for 32 jobs | 192 | ||
| Per hour cost in $ | 14.80 | ||
| Total cost | 2841.718519 | ||
| Gallimore family charged | 2200 | ||
| Client Margin/(Loss) | (641.72) |
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