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Gore Range Carpet Cleaning: ABC customer margin

Gore Range Carpet Cleaning is a family-owned business in Eagle-Vail, Colorado. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.55 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 more 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) 10,000 hundred square feet
Travel to jobs Miles driven 359,000 miles
Job support Number of jobs 1,700 jobs
Other (organization-sustaining
and idle capacity costs) None Not applicable
________________________________________

The total cost of operating the company for the year is $335,000, which includes the following costs:

Wages $ 137,000
Cleaning supplies 21,000
Cleaning equipment depreciation 7,000
Vehicle expenses 30,000
Office expenses 70,000
President's compensation 70,000
________________________________________ ________________________________________
Total cost $ 335,000
________________________________________________________________________________ ________________________________________________________________________________
________________________________________

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 71 % 12 % 0 % 17 % 100 %
Cleaning supplies 100 % 0 % 0 % 0 % 100 %
Cleaning equipment depreciation 70 % 0 % 0 % 30 % 100 %
Vehicle expenses 0 % 84 % 0 % 16 % 100 %
Office expenses 0 % 0 % 60 % 40 % 100 %
President's compensation 0 % 0 % 35 % 65 % 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. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Cleaning
Carpets Travel to Jobs Job
Support Other Total
Wages $
$
$
$
$

Cleaning supplies

Cleaning equipment depreciation

Vehicle expenses

Office expenses

President's compensation

________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
Total cost $
$
$
$
$

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Activity Cost Pool Activity Rate
Cleaning carpets $
per hundred square feet
Travel to jobs $
per mile
Job support $
per job
________________________________________

3. The company recently completed a 4 hundred square-foot carpet-cleaning job at the Lazy Bee Ranch?a 52.00-mile round-trip from the company's offices in Eagle-Vail. Compute the cost of this job using the activity-based costing system. (Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

Cost $

4. The revenue from the Lazy Bee Ranch was $90.20 (4 hundred square-feet at $22.55 per hundred square feet). Prepare a report showing the margin from this job. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

Gore Range Carpet Cleaning
Customer Margin?Activity-Based Costing
Sales $

Costs:
Cleaning carpets $

Job support

Travel to jobs

________________________________________ ________________________________________
Customer margin $

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Solution Summary

Your tutorial is attached in excel (click in cells to see calculations). This gives you a "worked out example" to study so that you can see the steps and the process for working these types of problems.

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