Question

Problem 3:

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	$	79,400	185,000	square feet of lawn
Caring for garden beds–low maintenance	$	32,000	26,000	square feet of low maintenance beds
Caring for garden beds–high maintenance	$	54,600	20,000	square feet of high maintenance beds
Travel to jobs	$	3,600	17,000	miles
Customer billing and service	$	7,500	34	customers

Required:

Compute the activity rate for each of the activity cost pools.

4. What are the three major types of product costs in a manufacturing company?

5. A company manufactures dressers and uses $100 worth of wood in each dresser. How would you classify the wood with respect to the following cost classifications?

Is the wood a product cost or period cost?

Is the wood a fixed cost or variable cost?

Is the wood a material cost or manufacturing overhead cost?

6. What is the main purpose for using managerial accounting in a business?

7. The company president makes $100,000 per year. You are the accountant and must determine how to properly classify the salary. How would you classify the salary with regard to the following cost classifications?

Is the salary a fixed or variable cost?

Is the salary a period or product cost?

Is the salary a direct labor cost or selling & administrative cost

Answer 1