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 $22.40 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, a simple system consisting of four activity cost pools seemed to be adequate. 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) 10,500 hundred square feet Travel to jobs Miles driven 96,500 miles Job support Number of jobs 1,700 jobs Other (costs of idle capacityand organization-sustaining costs) None Not applicable The total cost of operating the company for the year is $370,000, which includes the following costs: Wages $ 144,000 Cleaning supplies 35,000 Cleaning equipment depreciation 14,000 Vehicle expenses 36,000 Office expenses 69,000 President’s compensation 72,000 Total cost $ 370,000 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 % 14 % 0 % 13 % 100 % Cleaning supplies 100 % 0 % 0 % 0 % 100 % Cleaning equipment depreciation 67 % 0 % 0 % 33 % 100 % Vehicle expenses 0 % 82 % 0 % 18 % 100 % Office expenses 0 % 0 % 64 % 36 % 100 % President’s compensation 0 % 0 % 31 % 69 % 100 % Job support consists of receiving calls from potential customers at the home office, schedulingjobs, billing, resolving issues, and so on. Required: 1. Prepare the first-stage allocation of costs to the activity cost pools. Cleaning Job Carpets Travel to Jobs Support Other Total Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President’s compensation Total cost 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Cost Pool Activity Rate Cleaning carpets per hundred square feet Travel to jobs per mile Job support per job 3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 56.00-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places.) Cost of the job 4. The revenue from the Flying N ranch was $89.60 (4 hundred square feet at $22.40 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.) Gallatin Carpet Cleaning Customer Margin—Activity-Based Costing Amounts per Job Costs:

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 $22.40 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, a simple system consisting of four activity cost pools seemed to be adequate. 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) 10,500 hundred square feet Travel to jobs Miles driven 96,500 miles Job support Number of jobs 1,700 jobs Other (costs of idle capacityand organization-sustaining costs) None Not applicable The total cost of operating the company for the year is $370,000, which includes the following costs: Wages $ 144,000 Cleaning supplies 35,000 Cleaning equipment depreciation 14,000 Vehicle expenses 36,000 Office expenses 69,000 President’s compensation 72,000 Total cost $ 370,000 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 % 14 % 0 % 13 % 100 % Cleaning supplies 100 % 0 % 0 % 0 % 100 % Cleaning equipment depreciation 67 % 0 % 0 % 33 % 100 % Vehicle expenses 0 % 82 % 0 % 18 % 100 % Office expenses 0 % 0 % 64 % 36 % 100 % President’s compensation 0 % 0 % 31 % 69 % 100 % Job support consists of receiving calls from potential customers at the home office, schedulingjobs, billing, resolving issues, and so on. Required: 1. Prepare the first-stage allocation of costs to the activity cost pools. Cleaning Job Carpets Travel to Jobs Support Other Total Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President’s compensation Total cost 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Cost Pool Activity Rate Cleaning carpets per hundred square feet Travel to jobs per mile Job support per job 3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 56.00-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places.) Cost of the job 4. The revenue from the Flying N ranch was $89.60 (4 hundred square feet at $22.40 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.) Gallatin Carpet Cleaning Customer Margin—Activity-Based Costing Amounts per Job Costs:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)		10,500	hundred square feet
Travel to jobs	Miles driven		96,500	miles
Job support	Number of jobs		1,700	jobs
Other (costs of idle capacity and organization-sustaining costs)	None		Not applicable

The total cost of operating the company for the year is $370,000, which includes the following costs:


Wages	$	144,000
Cleaning supplies		35,000
Cleaning equipment depreciation		14,000
Vehicle expenses		36,000
Office expenses		69,000
President’s compensation		72,000
Total cost	$	370,000

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	%			14	%	0	%	13	%	100	%
Cleaning supplies		100	%			0	%	0	%	0	%	100	%
Cleaning equipment depreciation		67	%			0	%	0	%	33	%	100	%
Vehicle expenses		0	%			82	%	0	%	18	%	100	%
Office expenses		0	%			0	%	64	%	36	%	100	%
President’s compensation		0	%			0	%	31	%	69	%	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.

	Cleaning		Job
	Carpets	Travel to Jobs	Support	Other	Total
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President’s compensation
Total cost

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

Activity Cost Pool	Activity Rate
Cleaning carpets		per hundred square feet
Travel to jobs		per mile
Job support		per job

3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 56.00-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places.)

Cost of the job

4. The revenue from the Flying N ranch was $89.60 (4 hundred square feet at $22.40 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)

Gallatin Carpet Cleaning
Customer Margin—Activity-Based Costing
Amounts per Job

Costs:

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