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Carpet Cleaning: Activity Based Costing, Job Cost, & Suggestion

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Using Exhibit 7-5 as a guide, prepare the first-stage allocation of costs to the activity cost pools.
Using Exhibit 7-6 as a guide, compute the activity rates for the activity cost pools.
The company recently completed a 5 hundred square foot carpet -cleaning job at the Flying N ranch--a 75-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system.
The revenue from the Flying N ranch was $140 (5 hundred square feet @ $28 per hundred square feet). Using Exhibit 7-11 as a guide, prepare a report showing the margin from this job.
What do you conclude concerning the profitability of the Flying N ranch job? Explain.
What advice would you give the president concerning pricing jobs in the future?

activity cost pool activity measure activity for the year
cleaning carpets sq ft cleaned (00s) 20,000 hundred square feet
traveling to jobs miles driven 60,000 miles
job support number of jobs 2,000 jobs
other (costs of idle capacity and organization sustaining costs)

The total cost of operating the company for the year is $430,000, which includes the following costs:
wages $150,000.00
cleaning supplies $40,000.00
cleaning equipment depreciation $2,000.00
vehicle expense $80,000.00
office expense $60,000.00
president compensation $80,000.00
total $412,000.00

Resource consumption is distributed across the activities as follows:
Cleaning carpet travel to jobs job support other total
wages 70% 20% 0% 10% 100%
cleaning supplies 100% 0% 0% 0% 100%
cleaning equipment depreciation 80% 0% 0% 20% 100%
vehicle expense 0% 60% 0% 40% 100%
office expense 0% 0% 45% 55% 100%
president compensation 0% 0% 40% 60% 100%

Solution Preview

See you computations in excel, attached. Click in cells to see work.

What do you conclude concerning the profitability of the Flying N ranch job? Explain.

The job is not profitable. The pricing may be a fixed price for each job based on the carpet size but may not take into account the distance driven. In this case, the job was a ...

Solution Summary

Your tutorial is two paragraphs of analysis on the results and three schedules to compute first stage allocation, activity rates and the job costs of a particular job.