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 $23.25 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 (00s) Miles driven Number of jobs None Activity for the Year 9,000 hundred square feet 307,000 miles 2,000 jobs Not applicable The total cost of operating the company for the year is $347,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 135,000 27,000 17,000 32,000 61,000 75,000 $ 347,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Cleaning Travel to Job Carpets Jobs Support Other Total 79% 16% 0% 5% 100% 100% 0% 0% 0% 100% 74% 0% 0% 26% 100% 0% 84% 0% 16% 100% 0% 0% 63% 37% 100% 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.
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 $23.25 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 (00s) Miles driven Number of jobs None Activity for the Year 9,000 hundred square feet 307,000 miles 2,000 jobs Not applicable The total cost of operating the company for the year is $347,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 135,000 27,000 17,000 32,000 61,000 75,000 $ 347,000 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Cleaning Travel to Job Carpets Jobs Support Other Total 79% 16% 0% 5% 100% 100% 0% 0% 0% 100% 74% 0% 0% 26% 100% 0% 84% 0% 16% 100% 0% 0% 63% 37% 100% 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.
Chapter15: Choice Of Business Entity—other Considerations
Section: Chapter Questions
Problem 89TA
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Transcribed Image Text: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 $23.25 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 (00s)
Miles driven
Number of jobs
None
Activity for the Year
9,000 hundred square feet
307,000 miles
2,000 jobs
Not applicable
The total cost of operating the company for the year is $347,000 which includes the following costs:
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
Total cost
$ 135,000
27,000
17,000
32,000
61,000
75,000
$ 347,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Wages
Cleaning supplies
Cleaning equipment depreciation
Vehicle expenses
Office expenses
President's compensation
Cleaning Travel to
Job
Carpets
Jobs
Support
Other
Total
79%
16%
0%
5%
100%
100%
0%
0%
0%
100%
74%
0%
0%
26%
100%
0%
84%
0%
16%
100%
0%
0%
63%
37%
100%
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.
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