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 $28 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 Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (00s) 20,000 hundred square feet Travel to jobs Miles driven 60,000 miles Job support Number of jobs 2,000 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicable The total cost of operating the company for the year is $430,000. which includes the following costs: Wages $150,000 Cleaning supplies 40,000 Cleaning equipment depreciation 40,000 Vehicle expenses 70,000 Office expenses 50,000 Presidents compensation 80,000 Total cost $430,000 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 70% 20% 0% 10% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 80% 0% 0% 20% 100% Vehicle expenses 0% 60% 10% 30% 100% Office expenses 0% 0% 45% 55% 100% President's compensation 0% 0% 40% 60% 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. Required: prepare the first-stage allocation of costs to the activity cost pools. compute the activity rates for the activity cost pools. The company recently completed a 5 hundred square foot carpet-cleaning job at the Flying N Ranch a 75-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. The revenue from the Flying N ranch was $145 (5 hundred square feet @ $29 per hundred square feet), prepare a report showing the margin from this job. What advice would you give the president concerning pricing jobs in the future? Give reason.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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 $28 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 |
Activity Measure |
Activity for the Year |
|
Cleaning carpets |
Square feet cleaned (00s) |
20,000 hundred square feet |
|
Travel to jobs |
Miles driven |
60,000 miles |
|
Job support |
Number of jobs |
2,000 jobs |
|
Other (organization-sustaining costs and idle capacity costs) |
None |
Not applicable |
The total cost of operating the company for the year is $430,000. which includes the following costs:
|
Wages |
$150,000 |
|
Cleaning supplies |
40,000 |
|
Cleaning equipment |
40,000 |
|
Vehicle expenses |
70,000 |
|
Office expenses |
50,000 |
|
Presidents compensation |
80,000 |
|
Total cost |
$430,000 |
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 |
70% |
20% |
0% |
10% |
100% |
|
Cleaning supplies |
100% |
0% |
0% |
0% |
100% |
|
Cleaning equipment depreciation |
80% |
0% |
0% |
20% |
100% |
|
Vehicle expenses |
0% |
60% |
10% |
30% |
100% |
|
Office expenses |
0% |
0% |
45% |
55% |
100% |
|
President's compensation |
0% |
0% |
40% |
60% |
100% |
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
- prepare the first-stage allocation of costs to the activity cost pools.
- compute the activity rates for the activity cost pools.
- The company recently completed a 5 hundred square foot carpet-cleaning job at the Flying N Ranch a 75-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.
- The revenue from the Flying N ranch was $145 (5 hundred square feet @ $29 per hundred square feet), prepare a report showing the margin from this job.
- What advice would you give the president concerning pricing jobs in the future? Give reason.
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