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.

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 $22.70 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, 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)	11,500	hundred square feet
Travel to jobs	Miles driven	435,000	miles
Job support	Number of jobs	1,600	jobs
Other (costs of idle capacity and     organization-sustaining costs)	None	Not applicable

The total cost of operating the company for the year is $353,000, which includes the following costs:

Wages	$	138,000
Cleaning supplies		29,000
Cleaning equipment depreciation		15,000
Vehicle expenses		28,000
Office expenses		67,000
President’s compensation		76,000
Total cost	$	353,000

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	79	%	10	%	0	%	11	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	73	%	0	%	0	%	27	%	100	%
Vehicle expenses	0	%	77	%	0	%	23	%	100	%
Office expenses	0	%	0	%	63	%	37	%	100	%
President’s compensation	0	%	0	%	31	%	69	%	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. Explanation: 1. The first-stage allocation of costs to activity cost pools appears below: Wages: Cleaning Carpets = 79% × $138,000 = $109,020 Travel to Jobs = 10% × $138,000 = $13,800 Job Support = 0% × $138,000 = $0 Other = 11% × $138,000= $15,180 Cleaning supplies: Cleaning Carpets = 100% × $29,000 = $29,000 Travel to Jobs = 0% × $29,000 = $0 Job Support = 0% × $29,000 = $0 Other = 0% × $29,000 = $0 Cleaning equipment depreciation: Cleaning Carpets = 73% × $15,000 = $10,950 Travel to Jobs = 0% × $15,000 = $0 Job Support= 0% × $15,000 = $0 Other = 27% × $15,000 = $4,050 Vehicle expenses: Cleaning Carpets = 0% × $28,000 = $0 Travel to Jobs = 77% × $28,000 = $21,560 Job Support = 0% × $28,000 = $0 Other = 23% × $28,000 = $6,440 Office expenses: Cleaning Carpets = 0% × $67,000 = $0 Travel to Jobs = 0% × $67,000 = $0 Job Support = 63% × $67,000 = $42,210 Other = 37% × $67,000 = $24,790 President's compensation: Cleaning Carpets = 0% × $76,000 = $0 Travel to Jobs = 0% × $76,000 = $0 Job Support = 31% × $76,000 = $23,560 Other = 69% × $76,000 = $52,440 2. The activity rates are computed as follows:   Activity Cost Pool (a) Total Cost (b) Total Activity (a) ÷ (b) Activity Rate   Cleaning carpets $ 148,970   11,500  hundred square feet $ 12.95  per hundred square feet   Travel to jobs $ 35,360   435,000  miles $ .08  per mile   Job support $ 65,770   1,600  jobs $ 41.11  per job 3. The cost for the Flying N Ranch job is computed as follows:   Activity Cost Pool (a) Activity Rate (b) Activity  (a) × (b) ABC Cost   Cleaning carpets  $ 12.95  per hundred square feet 6  hundred square feet   $  77.70     Travel to jobs  $ .08  per mile 58  miles  4.64     Job support  $ 41.11  per job 1  job 41.11     Total   $ 123.45