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 |
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| Required: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Compute the activity rate for each of the activity cost pools.
Explanation:
The activity rate for each activity cost pool is computed by dividing its estimated overhead cost by its expected activity.
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