Question

*** It flagged the word support so job sub = job support

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.60 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:

Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)	12,500	hundred square feet
Travel to jobs	Miles driven	315,500	miles
Job sup.	Number of jobs	1,700	jobs
Other (organization-sustaining costs and idle capacity costs)	None	Not applicable

The total cost of operating the company for the year is $379,000 which includes the following costs:

Wages	$	150,000
Cleaning supplies		35,000
Cleaning equipment depreciation		19,000
Vehicle expenses		36,000
Office expenses		61,000
President’s compensation		78,000
Total cost	$	379,000

Resource consumption is distributed across the activities as follows:

Distribution of Resource Consumption Across Activities
	Cleaning Carpets		Travel to Jobs		Job Sup		Other		Total
Wages	77	%	15	%	0	%	8	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	69	%	0	%	0	%	31	%	100	%
Vehicle expenses	0	%	84	%	0	%	16	%	100	%
Office expenses	0	%	0	%	57	%	43	%	100	%
President’s compensation	0	%	0	%	33	%	67	%	100	%

Job sup consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

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

	Cleaning Carpets Travel to Jobs Job Sup Other Total Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President’s compensation Total cost

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

	Activity Cost Pool Activity Rate Cleaning carpets per hundred square feet Travel to jobs per mile Job sup per job

3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N Ranch—a 52-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.

Cost of job =

4. The revenue from the Flying Ranch was $45.20 (200 square feet @ $22.60 per hundred square feet). Calculate the customer margin earned on this job.

Customer Margin =

Answer 1

a)	First Stage allocation of cost to activity cost pools.
		Cleaning Carpets	Travel To Job	Job support	Other	Total
	Wages	115,500	22,500	-	12,000	150,000
	Cleaning Supplies	35,000	-	-	-	35,000
	Cleaning equipment Depreciation	13,110	-	-	5,890	19,000
	Vehicle Expense	-	30,240	-	5,760	36,000
	Office Expense	-	-	34,770	26,230	61,000
	President's Compensation	-	-	25,740	52,260	78,000
	Total cost	163,610	52,740	60,510	102,140	379,000
b)	Activity Cost Pool	Activity Cost	Activity for the year	Activity Rate
	Cleaning Carpets	163,610	12,500	13.09	per hundred sq ft
	Travel To Job	52,740	315,500	0.17	per mile driven
	Job support	60,510	1,700	35.59	per job
c)	Calculate Cost of Job using ABC
	Activity Cost Pool	Activity for the Job	Activity Rate	Job allocated to Cost
	Cleaning Carpets	2	13.09	26.18
	Travel To Job	52	0.17	8.84
	Job support	1	35.59	35.59
	Total cost of Job			70.61
d)	Calculate margin from Job
	Revenue from Job	45.20
	Les: Cost allocated to Job	70.61
	Profit/(Loss from Job)	(25.41)