Question

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	$	78,600	185,000	square feet of lawn
Caring for garden beds–low maintenance	$	31,200	29,000	square feet of low maintenance beds
Caring for garden beds–high maintenance	$	63,250	23,000	square feet of high maintenance beds
Travel to jobs	$	3,400	20,000	miles
Customer billing and service	$	7,100	20	customers

Required:

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

Answer 1

Calculation of Activity Rate
Activity	Overhead Cost	Activity Driver	Activity RATE
Caring for lawn	78,600	185000	sq feet of lawn	0.42	per sq feet of lawn
Caring for garden beds-low maintenance	31,200	29000	Sq feet of low maintenance beds	1.08	per Sq feet of low maintenance beds
Caring for garden high-low maintenance	63,250	23000	Sq feet of high maintenance beds	2.75	per Sq feet of high maintenance beds
Travel To Jobs	3,400	20000	miles	0.17	per mile
Customer Billings and Service	7,100	20	Customer	355.00	per customer
Total	183,550
Note: Activity rate = Overhead cost of activity/ No. of total activity