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)

ekkarill92 answered 2 years ago
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