Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company hasalways charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.40 per hundred square feet. However,there is some question about whether the company is actually making any money on jobs for some customers-particularly thoselocated on remote ranches that require considerable travel time. The owner's daughter, home for the summer from college, hassuggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting offour activity cost pools. The activity cost pools and their activity measures appear below:Activity Cost PoolCleaning carpetsTravel to jobsJob supportOther (organization-sustaining costs andidle capacity costs)Activity MeasureSquare feet cleaned (00s)Miles drivenNumber of jobsNoneActivity for the Year8,000 hundred square feet407,500 miles1,900 jobsNot applicableThe total cost of operating the company for the year is $350,000 which includes the following costs:WagesCleaning suppliesCleaning equipment depreciationVehicle expensesOffice expensesPresident's compensationTotal cost$ 147,00032,00010,00031,00055,00075,000$ 350,000Resource consumption is distributed across the activities as follows:Distribution of Resource Consumption Across ActivitiesCleaningTravelCarpetsto JobsJobSupportOtherTotalWages75%16%0%9%100%Cleaning supplies100%0%0%0%100%Cleaning equipment depreciation73%0%0%27%100%Vehicle expenses0%77%0%23%100%Office expenses0%0%60%40%100%President's compensation0%0%35%65%100%Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and soon.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 600 square foot carpet-cleaning job at the Flying N Ranch-a 53-mile round-trip journey fromthe 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 $140.40 (600 square feet @ $23.40 per hundred square feet). Calculate the customermargin earned on this job.

Activity-based costing:Activity-based costing is a method used to allocate overhead and indirect…

Wages Cleaning supplies pany for the year is $350,000 which includes the following costs: Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 147,000 32,000 10,000 31,000 55,000 75,000 $ 350,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning equipment depreciation Cleaning supplies Vehicle expenses Office expenses President's compensation Cleaning Travel Carpets to Jobs Job Support Other Total 75% 16% 08 9% 100% 100% 0% 0% 0% 100% 73% 0% 0% 27% 100% 0% 77% 0% 23% 100% 0% 0% 60% 40% 100% 0% 08 35% 65% 100%

Wages Cleaning supplies pany for the year is $350,000 which includes the following costs: Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 147,000 32,000 10,000 31,000 55,000 75,000 $ 350,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning equipment depreciation Cleaning supplies Vehicle expenses Office expenses President's compensation Cleaning Travel Carpets to Jobs Job Support Other Total 75% 16% 08 9% 100% 100% 0% 0% 0% 100% 73% 0% 0% 27% 100% 0% 77% 0% 23% 100% 0% 0% 60% 40% 100% 0% 08 35% 65% 100%

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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