Question

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 $22.95 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)	6,000	hundred square feet
Travel to jobs	Miles driven	439,500	miles
Job support	Number of jobs	1,600	jobs
Other (organization-sustaining costs and idle capacity costs)	None	Not applicable

The total cost of operating the company for the year is $357,000 which includes the following costs:

Wages	$	139,000
Cleaning supplies		28,000
Cleaning equipment depreciation		17,000
Vehicle expenses		31,000
Office expenses		64,000
President’s compensation		78,000
Total cost	$	357,000

Resource consumption is distributed across the activities as follows:

Distribution of Resource Consumption Across Activities
	Cleaning Carpets		Travel to Jobs		Job Support		Other		Total
Wages	73	%	10	%	0	%	17	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	72	%	0	%	0	%	28	%	100	%
Vehicle expenses	0	%	83	%	0	%	17	%	100	%
Office expenses	0	%	0	%	59	%	41	%	100	%
President’s compensation	0	%	0	%	30	%	70	%	100	%

Job support 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.

2. Compute the activity rates for the activity cost pools.

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.

4. The revenue from the Flying N Ranch was $45.90 (200 square feet @ $22.95 per hundred square feet). Calculate the customer margin earned on this job.

PLEASE HELP!!

Answer 1

Solution:-

Final answer rounded off to nearest 3 deciaml places

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

GALLATIN CARPET CLEANING
Distribution of Resource Consumption Across Activity Cost Pools
	Cleaning carpets	Travel to jobs	Job support	Other	Totals
Wages	101,470	13,900	0	23,630	139,000
Cleaning supplies	28,000	0	0	0	28,000
Cleaning equipment depreciation	12,240	0	0	4,760	17,000
Vehicle expenses	0	25,730	0	5,270	31,000
Office expenses	0	0	37,760	26,240	64,000
President’s compensation	0	0	23,400	54,600	78,000
Total cost	141,710	39,630	61,160	114,500	357,000

2. Compute the activity rates for the activity cost pools:-

GALLATIN CARPET CLEANING
Activity Rates for Activity Cost Pools
Activity cost pool	Total cost	Total activity	Activity rate
Cleaning Carpets	141,710	6,000	23.618	Per hundred square feet
Travel to Jobs	39,630	439,500	0.090	Per miles
Job Support	61,160	1,600	38.225	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:-

GALLATIN CARPET CLEANING
Activity Rates for Activity Cost Pools
Activity cost pool	Activity rate	Activity	Total cost
Cleaning Carpets	23.618	200	47.236
Travel to Jobs	0.090	52	4.68
Job Support	38.225	1	38.225
Total			90.141

4. The revenue from the Flying N Ranch was $45.90 (200 square feet @ $22.95 per hundred square feet). Calculate the customer margin earned on this job:-

GALLATIN CARPET CLEANING
Product margin
Sales		45.90
Costs:
Cleaning Carpets	47.236
Travel to Jobs	4.68
Job Support	38.225	90.141
Product margin		($ 44.241)

Final answer rounded off to nearest 3 deciaml places