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.
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 44P
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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 $22.30 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 |
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.
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