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 $22.30 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) 9,500 hundred square feet Travel to jobs Miles driven 292,000 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 $359,000 which includes the following costs: Wages $ 144,000 Cleaning supplies 30,000 Cleaning equipment depreciation 14,000 Vehicle expenses 30,000 Office expenses 61,000 President’s compensation 80,000 Total cost $ 359,000 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 77% 12% 0% 11% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 74% 0% 0% 26% 100% Vehicle expenses 0% 79% 0% 21% 100% Office expenses 0% 0% 56% 44% 100% President’s compensation 0% 0% 27% 73% 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.

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 $22.30 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) 9,500 hundred square feet Travel to jobs Miles driven 292,000 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 $359,000 which includes the following costs: Wages $ 144,000 Cleaning supplies 30,000 Cleaning equipment depreciation 14,000 Vehicle expenses 30,000 Office expenses 61,000 President’s compensation 80,000 Total cost $ 359,000 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 77% 12% 0% 11% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 74% 0% 0% 26% 100% Vehicle expenses 0% 79% 0% 21% 100% Office expenses 0% 0% 56% 44% 100% President’s compensation 0% 0% 27% 73% 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.

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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Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)	9,500	hundred square feet
Travel to jobs	Miles driven	292,000	miles
Job support	Number of jobs	2,000	jobs
Other (organization-sustaining costs and idle capacity costs)	None	Not applicable

Wages	$ 144,000
Cleaning supplies	30,000
Cleaning equipment depreciation	14,000
Vehicle expenses	30,000
Office expenses	61,000
President’s compensation	80,000
Total cost	$ 359,000

Distribution of Resource Consumption Across Activities
	Cleaning Carpets	Travel to Jobs	Job Support	Other	Total
Wages	77%	12%	0%	11%	100%
Cleaning supplies	100%	0%	0%	0%	100%
Cleaning equipment depreciation	74%	0%	0%	26%	100%
Vehicle expenses	0%	79%	0%	21%	100%
Office expenses	0%	0%	56%	44%	100%
President’s compensation	0%	0%	27%	73%	100%

Required:

Prepare the first-stage allocation of costs to the activity cost pools.
Compute the activity rates for the activity cost pools.

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