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 has already 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 $ 82,600 165,000 square feet of lawn Caring for garden beds–low maintenance $ 35,200 24,000 square feet of low maintenance beds Caring for garden beds–high maintenance $ 48,240 18,000 square feet of high maintenance beds Travel to jobs $ 3,200 15,000 miles Customer billing and service $ 6,700 34 customers Required: Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Exercise 6-3 Compute Activity Rates [LO6-3]
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 has already 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 | 165,000 | square feet of lawn |
| Caring for garden beds–low maintenance | $ | 35,200 | 24,000 | square feet of low maintenance beds |
| Caring for garden beds–high maintenance | $ | 48,240 | 18,000 | square feet of high maintenance beds |
| Travel to jobs | $ | 3,200 | 15,000 | miles |
| Customer billing and service | $ | 6,700 | 34 | customers |
|
|
Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)
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