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 $22.25 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 Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Activity for the Year 13,500 hundred square feet 300,000 miles 1,700 jobs Number of jobs None Not applicable The total cost of operating the company for the year is $347,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses $ 144,000 32,000 8,000 26,000 56,000 81,000 President's compensation Total cost $ 347,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Travel Job Carpets to Jobs Other Support 0% Total 78% 11% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 11% 100% 100% 0% 0% 0% 100% 70% 0% 0% 30% 100% 0% 81% 0% 19% 100% 0% 0% 64% 36% 100% 0% 0% 33% 67% 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 55-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 $44.50 (200 square feet @ $22.25 per hundred square feet). Calculate the customer margin earned on this job.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $22.25 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
Cleaning carpets
Travel to jobs
Job support
Other (organization-sustaining costs and
idle capacity costs)
Activity Measure
Square feet cleaned (00s)
Miles driven
Activity for the Year
13,500 hundred square feet
300,000 miles
1,700 jobs
Number of jobs
None
Not applicable
The total cost of operating the company for the year is $347,000 which includes the following costs:
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
$ 144,000
32,000
8,000
26,000
56,000
81,000
President's compensation
Total cost
$ 347,000
Resource consumption is distributed across the activities as follows:
Transcribed Image Text: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 $22.25 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 Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Activity for the Year 13,500 hundred square feet 300,000 miles 1,700 jobs Number of jobs None Not applicable The total cost of operating the company for the year is $347,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses $ 144,000 32,000 8,000 26,000 56,000 81,000 President's compensation Total cost $ 347,000 Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Travel
Job
Carpets
to Jobs
Other
Support
0%
Total
78%
11%
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
11%
100%
100%
0%
0%
0%
100%
70%
0%
0%
30%
100%
0%
81%
0%
19%
100%
0%
0%
64%
36%
100%
0%
0%
33%
67%
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 55-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 $44.50 (200 square feet @ $22.25 per hundred square feet). Calculate the
customer margin earned on this job.
Transcribed Image Text:Distribution of Resource Consumption Across Activities Cleaning Travel Job Carpets to Jobs Other Support 0% Total 78% 11% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 11% 100% 100% 0% 0% 0% 100% 70% 0% 0% 30% 100% 0% 81% 0% 19% 100% 0% 0% 64% 36% 100% 0% 0% 33% 67% 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 55-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 $44.50 (200 square feet @ $22.25 per hundred square feet). Calculate the customer margin earned on this job.
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