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	$	82,600	190,000	square feet of lawn
Caring for garden beds–low maintenance	$	35,200	26,000	square feet of low maintenance beds
Caring for garden beds–high maintenance	$	54,800	20,000	square feet of high maintenance beds
Travel to jobs	$	3,800	17,000	miles
Customer billing and service	$	7,900	26	customers

  

Required:

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

Answer 1

Formula for activity rate is:

Activity rate = Estimated overhead/estimated cost driver

Overhead rate of caring for lane = $ 82,600/190,000 = $ 0.4347368 or $ 0.43 per sq. feet

Overhead rate of Caring for garden beds–low maintenance

                                        = $ 35,200/26,000 = $ 1.353846 or $ 1.35 per sq. feet

Overhead rate of Caring for garden beds–high maintenance = $ 54,800/ 20,000

                                                                                     = $ 2.74 per sq. feet

Overhead rate of Travel to jobs = $ 3,800/ 17,000 = $ 0.223529412 or $ 0.22per miles

Overhead rate of Customer billing and service = $ 7,900/ 26 = $ 303.8461538 or $ 303.85 per customer