Gore Range Carpet Cleaning is a family-owned business inEagle-Vail, Colorado. For its services, the company has alwayscharged a flat fee per hundred square feet of carpet cleaned. Thecurrent fee is $22.60 per hundred square feet. However, there issome question about whether the company is actually making anymoney on jobs for some customersâparticularly those located on moreremote ranches that require considerable travel time. The ownerâsdaughter, home for the summer from college, has suggestedinvestigating this question using activity-based costing. Aftersome discussion, a simple system consisting of four activity costpools seemed to be adequate. The activity cost pools and theiractivity measures appear below:
Activity Cost Pool ActivityMeasure Activity for the Year Cleaning carpets Square feetcleaned (000s) 11,000 hundred squarefeet Travel to jobs Milesdriven 85,500 miles Jobsupport Number ofjobs 1,700 jobs Other (organization-sustaining
and idle capacity costs) None Notapplicable
The total cost of operating thecompany for the year is $352,000, which includes the followingcosts:
Wages $ 145,000 Cleaning supplies 21,000 Cleaning equipment depreciation 16,000 Vehicle expenses 32,000 Office expenses 67,000 Presidentâs compensation 71,000 Total cost $ 352,000
Resource consumption isdistributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning Carpets Travel to Jobs Job Support Other Total Wages 79 % 13 % 0 % 8 % 100 % Cleaning supplies 100 % 0 % 0 % 0 % 100 % Cleaning equipment depreciation 74 % 0 % 0 % 26 % 100 % Vehicle expenses 0 % 76 % 0 % 24 % 100 % Office expenses 0 % 0 % 61 % 39 % 100 % Presidentâs compensation 0 % 0 % 29 % 71 % 100 %
Job supportconsists of receiving calls from potential customers at the homeoffice, scheduling jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity costpools.
2. Compute theactivity rates for the activity cost pools. (Round youranswers to 2 decimal places.)
3. The company recently completed a 2 hundred square-footcarpet-cleaning job at the Lazy Bee Ranchâa 57.00-mile round-tripfrom the companyâs offices in Eagle-Vail. Compute the cost of thisjob using the activity-based costing system. (Round yourintermediate and final answers to 2 decimal places.)
4. The revenue from the Lazy Bee Ranch was $45.20 (2 hundredsquare-feet at $22.60 per hundred square feet). Prepare a reportshowing the margin from this job. (Negative customermargins should be indicated by a minus sign. Round yourintermediate calculations and final answers to 2 decimalplaces.)
Gore Range Carpet Cleaning is a family-owned business inEagle-Vail, Colorado. For its services, the company has alwayscharged a flat fee per hundred square feet of carpet cleaned. Thecurrent fee is $22.60 per hundred square feet. However, there issome question about whether the company is actually making anymoney on jobs for some customersâparticularly those located on moreremote ranches that require considerable travel time. The ownerâsdaughter, home for the summer from college, has suggestedinvestigating this question using activity-based costing. Aftersome discussion, a simple system consisting of four activity costpools seemed to be adequate. The activity cost pools and theiractivity measures appear below:
| Activity Cost Pool | ActivityMeasure | Activity for the Year | |
| Cleaning carpets | Square feetcleaned (000s) | 11,000 | hundred squarefeet |
| Travel to jobs | Milesdriven | 85,500 | miles |
| Jobsupport | Number ofjobs | 1,700 | jobs |
| Other (organization-sustaining and idle capacity costs) | None | Notapplicable | |
The total cost of operating thecompany for the year is $352,000, which includes the followingcosts: |
| Wages | $ | 145,000 |
| Cleaning supplies | 21,000 | |
| Cleaning equipment depreciation | 16,000 | |
| Vehicle expenses | 32,000 | |
| Office expenses | 67,000 | |
| Presidentâs compensation | 71,000 | |
| Total cost | $ | 352,000 |
Resource consumption isdistributed across the activities as follows: |
Distribution of Resource Consumption Across Activities | ||||||
| Cleaning Carpets | Travel to Jobs | Job Support | Other | Total | ||||||
| Wages | 79 | % | 13 | % | 0 | % | 8 | % | 100 | % |
| Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
| Cleaning equipment depreciation | 74 | % | 0 | % | 0 | % | 26 | % | 100 | % |
| Vehicle expenses | 0 | % | 76 | % | 0 | % | 24 | % | 100 | % |
| Office expenses | 0 | % | 0 | % | 61 | % | 39 | % | 100 | % |
| Presidentâs compensation | 0 | % | 0 | % | 29 | % | 71 | % | 100 | % |
| Job supportconsists of receiving calls from potential customers at the homeoffice, scheduling jobs, billing, resolving issues, and so on. |
| Required: |
| 1. | Prepare the first-stage allocation of costs to the activity costpools. |
| 2. | Compute theactivity rates for the activity cost pools. (Round youranswers to 2 decimal places.) |
| 3. | The company recently completed a 2 hundred square-footcarpet-cleaning job at the Lazy Bee Ranchâa 57.00-mile round-tripfrom the companyâs offices in Eagle-Vail. Compute the cost of thisjob using the activity-based costing system. (Round yourintermediate and final answers to 2 decimal places.) |
| 4. | The revenue from the Lazy Bee Ranch was $45.20 (2 hundredsquare-feet at $22.60 per hundred square feet). Prepare a reportshowing the margin from this job. (Negative customermargins should be indicated by a minus sign. Round yourintermediate calculations and final answers to 2 decimalplaces.) |
Related questions
| 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 $23.40 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customersâparticularly those located on remote ranches that require considerable travel time. The ownerâs 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) | 8,500 | hundred square feet |
| Travel to jobs | Miles driven | 287,000 | miles |
| Job support | Number of jobs | 2,100 | jobs |
| Other (costs of idle capacity and organization-sustaining costs) | None | Not applicable | |
| The total cost of operating the company for the year is $350,000, which includes the following costs: |
| Wages | $ | 135,000 |
| Cleaning supplies | 26,000 | |
| Cleaning equipment depreciation | 15,000 | |
| Vehicle expenses | 37,000 | |
| Office expenses | 63,000 | |
| Presidentâs compensation | 74,000 | |
| Total cost | $ | 350,000 |
| 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 | 71 | % | 13 | % | 0 | % | 16 | % | 100 | % |
| Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
| Cleaning equipment depreciation | 71 | % | 0 | % | 0 | % | 29 | % | 100 | % |
| Vehicle expenses | 0 | % | 80 | % | 0 | % | 20 | % | 100 | % |
| Office expenses | 0 | % | 0 | % | 61 | % | 39 | % | 100 | % |
| Presidentâs compensation | 0 | % | 0 | % | 29 | % | 71 | % | 100 | % |
| Job support consists of receiving calls from potential customers at the home office, scheduling 1.) Prepare the first-stage allocation of costs to the activity cost pools. 2.)
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