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Activity based costing (calculating customer margin)

The Thornes Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

Activity Cost Pool Total Cost Total Activity
Cleaning $274,170 48,100 hours
Job support $ 99,066 5,700 jobs
Client support $9.796 620 clients
Other $110,000 Not applicable
Total $493,032

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Lazzara family, requested 37 jobs during the year that required a total of 222 hours of housecleaning. For this service, the client was charged $2,350

Required:
a. Using the activity-based costing system, compute the customer margin for the Lazzara family. Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Lazzara family. Round off all calculations to the nearest whole cent

Solution Preview

The Thornes Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

Activity Cost Pool Total Cost Total Activity
Cleaning $274,170 48,100 hours
Job support $ 99,066 5,700 jobs
Client support $9.796 620 clients
Other $110,000 Not applicable
Total $493,032

The "Other" activity cost pool consists of the costs of ...

Solution Summary

The solution explains how to calculate the customer margin using activity based costing

$2.19