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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 $22.40 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly 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, a simple system consisting of four activity cost pools seemed to be adequate. 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)   10,500   hundred square feet
Travel to jobs Miles driven   96,500   miles
Job support Number of jobs   1,700   jobs
Other (costs of idle capacity
and organization-sustaining costs)
None   Not applicable

 

 

The total cost of operating the company for the year is $370,000, which includes the following costs:
 

       
Wages $ 144,000  
Cleaning supplies   35,000  
Cleaning equipment depreciation   14,000  
Vehicle expenses   36,000  
Office expenses   69,000  
President’s compensation   72,000  
Total cost $ 370,000  

 


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   73 %     14 %     0 %     13 %       100 %
Cleaning supplies   100 %     0 %     0 %     0 %       100 %
Cleaning equipment depreciation   67 %     0 %     0 %     33 %       100 %
Vehicle expenses   0 %     82 %     0 %     18 %       100 %
Office expenses   0 %     0 %     64 %     36 %       100 %
President’s compensation   0 %     0 %     31 %     69 %       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.

 
 
  Cleaning   Job    
  Carpets Travel to Jobs Support Other Total
Wages          
Cleaning supplies          
Cleaning equipment depreciation          
Vehicle expenses          
Office expenses          
President’s compensation          
Total cost          


 

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

 
 
Activity Cost Pool Activity Rate  
Cleaning carpets   per hundred square feet
Travel to jobs   per mile
Job support   per job

 
 

3. The company recently completed a 4 hundred square foot carpet-cleaning job at the Flying N ranch—a 56.00-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places.)

 

 
 
Cost of the job  


 

4. The revenue from the Flying N ranch was $89.60 (4 hundred square feet at $22.40 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)

 
 
Gallatin Carpet Cleaning
Customer Margin—Activity-Based Costing
Amounts per Job
     
Costs:    
     
     
     
     
     
     

 

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