Wednesday, 1 April 2015

Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes.

Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:

 Activity Cost Pool Activity Measure Caring for lawn Square feet of lawn Caring for garden beds–low maintenance Square feet of low maintenance beds Caring for garden beds–high maintenance Square feet of high maintenance beds Travel to jobs Miles Customer billing and service Number of customers

 The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

 Activity Cost Pool Estimated Overhead Cost Expected Activity Caring for lawn \$ 88,200 190,000 square feet of lawn Caring for garden beds–low maintenance \$ 40,800 23,000 square feet of low maintenance beds Caring for garden beds–high maintenance \$ 47,090 17,000 square feet of high maintenance beds Travel to jobs \$ 5,000 14,000 miles Customer billing and service \$ 10,300 34 customers

Required:
Compute the activity rate for each of the activity cost pools.

Explanation:
 Activity Cost Pool Estimated Overhead Cost Expected Activity Activity Rate Caring for lawn \$ 88,200 190,000 square feet of lawn \$ 0.46 per square foot of lawn Caring for garden beds–low      maintenance \$ 40,800 23,000 square feet of low  maintenance beds \$ 1.77 per square foot of low  maintenance beds Caring for garden beds–high      maintenance \$ 47,090 17,000 square feet of high  maintenance beds \$ 2.77 per square foot of high  maintenance beds Travel to jobs \$ 5,000 14,000 miles \$ 0.36 per mile Customer billing and service \$ 10,300 34 customers \$ 302.94 per customer

The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by its expected activity.