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Anugerah Carpet Cleaning is a small business operating in Rawang, Selangor. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is RM 28 per hundred square feet. However, there is a question whether the company is actually making any money on jobs or not for some customers. Aishah, the owner's daughter in law who has a degree in accounting proposed a new costing method called as Activity Based Costing system. 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 20,000 square feet

Travel to jobs Kilometre driven 60,000 kilometres

Job support Number of jobs 2,000 jobs

Other None Not applicable

The total cost of operating the company for the year is RM 430,000, which includes the

following costs:

Cost Components RM

Wages 150,000

Cleaning supplies 40,000

Cleaning equipment depreciation 20,000

Vehicle expenses 80,000

Office expenses 60,000

Managing Director compensation 80,000

Total cost 430,000

Resource consumption is distributed across the activities as follows:

Cleaning Travel to Job Others

carpets jobs support

Wages 70% 20% 0% 10%

Cleaning supplies 100% 0% 0% 0%

Cleaning equipment 80% 0% 0% 20%

depreciation

Vehicle expenses 0% 60% 0% 40%

Office expenses 0% 0% 45% 55%

Managing Director 0% 0% 40% 60%

compensation

Job support consists of receiving calls from potential clients at the home office, scheduling jobs, billing, resolving issues, and so on. For Travel to jobs, it is the company policy to charge a return trip for the job at customer premise.

5

Required:

1. Prepare a first stage allocation of costs to the activity cost pools. (4 marks)

ii. Compute the activity rates for the activity cost pools. (3 marks)

iii. The company recently completed a 500 square feet carpet cleaning job at the Ar-Rahim Mosque, Putrajaya. The one way distance of the mosques from the company office in Rawang is 32.5 kilometres. Compute the cost of this job using the Activity based costing

method. (5 marks)

iv. Calculate the customer margin earned on Ar-Rahim Mosque's job. (5 marks)

v. What does Aishah conclude concerning the profitability of the Ar-Rahim Mosque' job?

Explain. (4 marks)

vi. What advice would Aishah gives to her father in-law (the Managing Director) concerning

pricing job in the future? (4 marks)

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