Question

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 $22.15 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 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 (05) Miles driven Number of jobs Activity for the Year 8,500 hundred square feet 433,000 miles 1,800 jobs None Not applicable The total cost of operating the company for the year is $363,000 which includes the following costs: $ Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost 136,000 35,000 7,000 33,000 69,000 83,000 363,000

Answer 1

1		Cleaning Carpets	Travel to Jobs	Job support	Other	Total
	Wages	99,280	16,320	-	20,400	136,000
	Cleaning Supplies	35,000	-	-	-	35,000
	Cleaning Equipment depreciation	4,620	-	-	2,380	7,000
	Vehicle Expense	-	27,060	-	5,940	33,000
	Office Expense	-	-	44,160	24,840	69,000
	President's Compensation	-	-	26,560	56,440	83,000
	Total Cost	138,900	43,380	70,720	110,000	363,000

2	Activity Rates for the Activity cost Pools
	Activity Cost Pool	Expected Overhead Costs	Expected Activity Cost	Activity Rate
	Cleaning Carpets	138,900	8,500	16.34	Per hundred Sq. feet
	Travel to jobs	43,380	433,000	0.10	Per Mile
	Job support	70,720	1,800	39.29	Per Job
		253,000

3	Cost of the Job
	Job	Usage of Activity in the Job	Activity Rate	Applied Cost to Job
	Cleaning Carpets	600	16.34	9,804.71
	Travel to jobs	51	0.10	5.11
	Job support	1	39.29	39.29
	Total cost of the Job			9,849.10

4	Customer Margin on this Job
	Revenue	132.90
	Cost of the Job per sq. feet	16.42
	Customer Margin	116.48

Please find below table useful to compute desired results: -

B А 1 Current Fee 2 Activity Cost Pool 3 Cleaning Carpets 4 Travel to jobs 5 Job support 6 Other 7 Wages 8 Cleaning Supplies 9 Cleaning Equipment Depreciation 10 Vehicle Expenses 11 Office Expense 12 President's Compensation 13 Total cost of Operating 14 15 16 Wages 17 Cleaning Supplies 18 Cleaning Equipment depreciation 19 Vehicle Expense 20 Office Expense 21 President's Compensation DE 22.15 Activity Measure Activity for the year Square feet Cleaned 8500 Miles Driven 433000 Number of jobs 1800 None NA 136000 35000 7000 33000 69000 83000 =SUMB7-B12) Distribution of Resource consumption across activities Cleaning Carpets Travel to Jobs Job support Other Total =73/100 =12/100 =15/100 =SUMB16:16) =100/100 =SUMB17-E17) =66/100 =34/100 =SUMB18:E18) =82/100 =18/100 =SUMB19:519) =64/100 =36/100 =SUMB20:E20) =32/100 =68/100 =SUMB21-E21) 23 Req.3 24 51 25 Req.4 Completed Carpet Cleaning job 600 Round trip journey Revenue =C26*C27/100 Square feet 600 Rate per hundred square feet =22.15 27

3 H 1 1] Cleaning Carpets 2 Wages =B7*B16 Cleaning Supplies =SB8*B17 Cleaning Equipment depreciation =SB9*B18 Vehicle Expense =SB10*B19 Office Expense =SB11*B20 President's Compensation =SB12*B21 Total Cost =SUM(12:17) Travel to Jobs =B7*C16 =SB8*C17 =SB9*C18 =SB10*c19 =SB11*C20 =SB12*C21 =SUM(J2:17) к Job support =B7%D16 =SB8%D17 =SB9*D18 1=SB10*D19 =SB11*D20 =SB12 D21 =SUM(K2:K7) Other =B7*E16 =SB8*E17 =SB9%E18 =SB10*E19 =SB11*E20 =SB12*E21 =SUM(L2:L7) м Total =SUM(12:12) =SUM(13:13) =SUM(14:L4) =SUM(15:15) =SUM(16:L6) =SUM(I7-L7) =SUM(18:L8) 12 Activity Cost Pool Cleaning Carpets Travel to jobs Job support Activity Rates for the Activity cost Pools Expected Overhead Costs Expected Activity Cost Activity Rate =18 =C3 =112/J12 =J8 =113/J13 =K8 =I14/J14 =SUM(112:114) =C4 Per hundred Sq. feet Per Mile Per Job Job Cleaning Carpets Travel to jobs Job support Cost of the Job Usage of Activity in the Job Activity Rate =C23 =K12 =C24 =K13 =K14 Total cost of the Job Applied Cost to Job =119*J19 =120*J20 =121*J21 =SUM(K19:K21) 25 Customer Margin on this Job Revenue =C25 Cost of the Job per sq. feet =K22/C26 Customer Margin =125-126 26 27

End results would be as follows: -

EF А 1 Current Fee 2 Activity Cost Pool 3 Cleaning Carpets 4. Travel to jobs 5 Job support 6 Other 7 Wages 8 Cleaning Supplies 9 Cleaning Equipment Depreciation 10 Vehicle Expenses 11 Office Expense 12 President's Compensation 13 Total cost of Operating 14 15 16 Wages 17 Cleaning Supplies 18 Cleaning Equipment depreciation 19 Vehicle Expense 20 Office Expense 21 President's Compensation 22 23 Req.3 B 22.15 Activity Measure Activity for the year Square feet Cleaned 8.500 Miles Driven 433.000 Number of jobs 1.800 None NA 136.000 35,000 7,000 33,000 69,000 83,000 363.000 Distribution of Resource consumption across activities Cleaning Carpets Travel to Jobs 73% 12% 100% 0% 66% 0% 0% 0% 0% Job support 0% 0% 0% 0% 64% 32% Other 15% 0% 34% 18% 36% 68% Total 100% 100% 100% 100% 100% 100% 82% 0% 0% 25 Req.4 Completed Carpet Cleaning job Round trip journey Revenue Square feet Rate per hundred square feet 600.00 51.00 132.90 600.00 22.15 27

Cleaning Carpets Travel to Jobs Job support Other 16,320 20.400 99,280 35,000 4.620 Wages Cleaning Supplies Cleaning Equipment depreciation Vehicle Expense Office Expense President's Compensation Total Cost м | Total 136,000 35,000 7.000 33.000 69,000 83,000 363,000 27,060 2,380 5.940 24,840 56.440 110,000 44.160 26,560 70.720 138.900 43,380 Activity Rate Activity Cost Pool Cleaning Carpets Travel to jobs Job support Activity Rates for the Activity cost Pools Expected Overhead Costs Expected Activity Cost 138.900 8,500 43,380 433,000 70.720 1.800 253,000 16.34 Per hundred Sq. feet 0.10 Per Mile 39.29 Per Job Activity Rate Job Cleaning Carpets Travel to jobs Job support Cost of the Job Usage of Activity in the Job 600 51 16.34 0.10 39.29 Applied Cost to Job 9,804.71 5.11 39.29 9,849.10 Total cost of the Job 24 4 Customer Margin on this Job Revenue Cost of the Job per sq. feet Customer Margin 132.90 16.42 116.48