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 $23.50 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 Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Number of jobs None Activity for the Year 11,500 hundred square feet 109,500 miles 1,900 jobs The total cost of operating the company for the year is $346,000 which includes the following costs: Wages Cleaning supplies $ 137,000 24,000 Cleaning equipment depreciation 9,000 Vehicle expenses 39,000 Office expenses 67,000 President's compensation 70,000 Total cost $346,000 Not applicable Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Cleaning Carpets Jobs 73% 14% Travel to 100% 70% 0% 0% 0% Job Support Other 0% 13% 100% 0% 0% 0% 100% 0% 0% 30% 100% 80% 0% 20% 100% 0% 59% 41% 100% 0% 29% 71% 100% Total 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. I 2. 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 $23.50 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 Cleaning carpets Travel to jobs Job support Other (organization-sustaining costs and idle capacity costs) Activity Measure Square feet cleaned (00s) Miles driven Number of jobs None Activity for the Year 11,500 hundred square feet 109,500 miles 1,900 jobs The total cost of operating the company for the year is $346,000 which includes the following costs: Wages Cleaning supplies $ 137,000 24,000 Cleaning equipment depreciation 9,000 Vehicle expenses 39,000 Office expenses 67,000 President's compensation 70,000 Total cost $346,000 Not applicable Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Cleaning Carpets Jobs 73% 14% Travel to 100% 70% 0% 0% 0% Job Support Other 0% 13% 100% 0% 0% 0% 100% 0% 0% 30% 100% 80% 0% 20% 100% 0% 59% 41% 100% 0% 29% 71% 100% Total 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. I 2. Compute the activity rates for the activity cost pools.
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 44P
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Transcribed Image Text: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 $23.50 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
Cleaning carpets
Travel to jobs
Job support
Other (organization-sustaining costs and idle capacity costs)
Activity Measure
Square feet cleaned (00s)
Miles driven
Number of jobs
None
Activity for the Year
11,500 hundred square feet
109,500 miles
1,900 jobs
The total cost of operating the company for the year is $346,000 which includes the following costs:
Wages
Cleaning supplies
$ 137,000
24,000
Cleaning equipment depreciation
9,000
Vehicle expenses
39,000
Office expenses
67,000
President's compensation
70,000
Total cost
$346,000
Not applicable
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
Cleaning
Carpets Jobs
73% 14%
Travel to
100%
70%
0%
0%
0%
Job
Support Other
0% 13% 100%
0% 0% 0% 100%
0% 0% 30% 100%
80%
0%
20% 100%
0% 59% 41% 100%
0% 29% 71% 100%
Total
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. I
2. Compute the activity rates for the activity cost pools.
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