Friday 26 September 2014

Gore Range Carpet Cleaning is a family-owned business in Eagle-Vail, Colorado. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned.

Gore Range Carpet Cleaning is a family-owned business in Eagle-Vail, Colorado. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.15 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 more 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) 13,000  hundred square feet  
  Travel to jobs Miles driven 273,000  miles
  Job support Number of jobs  2,000  jobs
  Other (organization-sustaining
    and idle capacity costs)
None  Not applicable


     The total cost of operating the company for the year is $363,000, which includes the following costs:

     
  Wages $ 148,000   
  Cleaning supplies   30,000   
  Cleaning equipment depreciation   14,000   
  Vehicle expenses   28,000   
  Office expenses   63,000   
  President’s compensation   80,000   
 

  Total cost $ 363,000   
 





     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 78 % 11 % 0 % 11 % 100 %
  Cleaning supplies 100 % 0 % 0 %  0 % 100 %
  Cleaning equipment depreciation 74 % 0 % 0 % 26 % 100 %
  Vehicle expenses 0 % 81 % 0 % 19 % 100 %
  Office expenses 0 % 0 % 58 % 42 % 100 %
  President’s compensation 0 % 0 % 34 % 66 % 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. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

           Cleaning
         Carpets
         Travel to Jobs      Job
       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. Omit the "$" sign in your response.)

  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 8 hundred square-foot carpet-cleaning job at the Lazy Bee Ranch—a 52.00-mile round-trip from the company’s offices in Eagle-Vail. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

  Cost        $  

4.
The revenue from the Lazy Bee Ranch was $177.20 (8 hundred square-feet at $22.15 per hundred square feet). Prepare a report showing the margin from this job. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

Gore Range Carpet Cleaning
Customer Margin—Activity-Based Costing
  Sales     $  
  Costs:    
      Cleaning carpets   $    
      Travel to jobs      
      Job support      
 

  Customer margin   $  
   




Explanation:

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