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.

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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 1EA: Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help...

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