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7-20 (Algo) Evaluating the Profitability of Services [LO7-2, LO7-3, LO7-4, LO7-5] 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 $22.80 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customersparticularly those located on remote ranches that require considerable travel time. The owners 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 Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (00s) 15,000 hundred square feet Travel to jobs Miles driven 257,000 miles Job support Number of jobs 1,700 jobs Other (organization-sustaining costs and idle capacity costs) None Not applicable The total cost of operating the company for the year is $354,000 which includes the following costs: Wages $ 147,000 Cleaning supplies 34,000 Cleaning equipment depreciation 11,000 Vehicle expenses 26,000 Office expenses 61,000 Presidents compensation 75,000 Total cost $ 354,000 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 76% 12% 0% 12% 100% Cleaning supplies 100% 0% 0% 0% 100% Cleaning equipment depreciation 69% 0% 0% 31% 100% Vehicle expenses 0% 80% 0% 20% 100% Office expenses 0% 0% 61% 39% 100% Presidents compensation 0% 0% 26% 74% 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. 2. Compute the activity rates for the activity cost pools. 3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N Rancha 55-mile round-trip journey from the companys offices in Bozeman. Compute the cost of this job using the activity-based costing system. 4. The revenue from the Flying N Ranch was $91.20 (400 square feet @ $22.80 per hundred square feet). Calculate the customer margin earned on this job

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