Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 15PB
Dr. Detail is a mobile car wash. The price for a standard wash is $35 and takes half an hour. Each worker is paid $20/hr, uses $5 of materials and $0.50 per mile to use their own vehicle to travel from job to job.
The average job is 5 miles.
Ernest Kuhn’s son got sick in the car, and Ernest Kuhn has asked Dr. Detail to detail his car instead of doing a simple wash and vacuum.
A. Determine the differential income if $100 was charged to detail the car. Each car detail will take 2 hours. The materials used by the worker is three times that of a standard car wash.
B. If the price is raised to $150, what is the differential income change?
C. Keeping the price at $150, if the worker rate per hour would increase to $20/hr how would the differential income change? Prepare an Excel spreadsheet.
D. What other issues would you need to consider?
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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 $23.45 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)
12,000
hundred square feet
Travel to jobs
Miles driven
404,000
miles
Job support
Number of jobs
2,000
jobs
Other (organization-sustaining costs and idle…
Chapter 10 Solutions
Principles of Accounting Volume 2
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