Chapter 7: Mead Cleaning Company Graded Homework Assignment Fall 2019 Mead Cleaning Company is a family-owned business operating out of Bozeman, Montana. For its home carpet cleaning services, the company has always charged a flat fee based on one hundred square feet of carpet cleaned. The current fee is $30 per hundred square feet. The Mead Company home carpet-cleaning fee is a step cost to the customers. For example, the minimum charge for a Mead carpet-cleaning technician to come to a customer's location is $30. If a customer has 101 to 199 square feet of carpet to clean, the fee is $60 ($30 x 2). The Mead family believes this fee structure provides enough revenue to cover its travel costs and provide a profit However, Chris Fenwick, the company's accountant, is becoming concerned that the company might actually not be covering all costs on jobs for some customers. Chris is particularly concerned about the jobs done for ranchers that require considerable travel time. Recently Chris talked with Lee Mead, the current CEO, and Pat Mead, the home carpet-cleaning service manager, about these concerns and suggested that a simple activity- based costing system be implemented After some discussion, Lee and Pat decided on three activity cost pools and their activity measures. This information is presented in Table 1. The "job support activity pool consists of costs related to receiving calls from potential customers, scheduling jobs, billing, resolving issues, etc up Table 1 Overhead Activity Cost Pools & Activity Measures Activity Measure Activity Cost Pool Activity for the Year Cleaning carpets 100 square feet 20.000 blocks of 100 square feet Travel to/from jobs Miles driven 60,000 miles Job support Number of jobs 2,000 jobs Not applicable Other None Organization-sustaining costs and idle capacity costs The total cost of operating the home carpet cleaning services for the year is $430,000 as shown in Table 2. Table 2 Total Home Carpet Cleaning Service Costs $150,000 Wages $40,000 Cleaning supplies 20,000 Cleaning equipment depreciation 80,000 Vehicle expenses 60.000 Office expenses 80,000 Pat Mead's salary $430,000 Total Costs After due consideration, Chris, Lee, and Pat decided to include wages in the overhead activity pools because the technicians also talk with customers who have problems or complaints and work on the company vehicles when needed. Additionally, both of the support staff employees are trained to go out on jobs and do so if needed. Pat strongly believes that asking the technicians and support staff to log how they spent their time would not be helpful and probably would not be received well by the employees. Because of this concern, Lee AC P and Pat decided on how the wages cost wil be allocated to the four cost pools based on their experience with the company. All other distributions of resource consumption across the activites (cost pools) were based on corporate records Upon review of Mead's processes, Chris, Lee and Pat agreed that the cleaning supplies could be treated as a direct cost. Customers will be billed for the number of bottles of cleaning and stain-removing solution opened at their location Resource consumption will be distributed across the activities (cost pools) as shown in Table 3 Table 3 Distribution of Resource Consumption Across Activities (Cost Pools) Travel to/from Jobs Home Carpet Cleaning Service Overhead Costs Cleaning Carpets Job Support Total Other Wages 5% 0 % 70 % 20% 5% 100% Cleaning equipment depreciation Vehicle expenses 30 % 45% 60 % 60 % 100 % 70% 0% 0 % 0 % 55% 100% Office expenses 0 % 0% 40% 100% Pat Mead's salary 0 % 0% 40 % 100% Requirements: Using the information presented above, perform the following calculations. 1. Allocate the costs presented in Table 2 to the appropriate activity cost pools (first stage allocation). If a cost is not allocated to a cost pool, enter "0" in the appropriate cell for that cost Compute the activity rates for each activity cost pool. Round calculations to the nearest cent 2. 3. Mead Company recently completed a 5 hundred square foot carpet-cleaning job at the Circle H Ranch- a 50-mile one-way trip from the company's location in Bozeman. Cleaning supplies totaling $23.50 were used on the job. Compute the overhead costs of this job assuming the activity rates listed in the table provided (DO NOT USE THE RATES YOU CALCUALTED IN PART 2) (second stage allocation). Calculate the margin of the Circle H Ranch job using the following: a. Sales: the current fee of $30 per hundred square feet b. Costs: the ABC overhead costs you calculated in Part 3 and any direct costs given in the assignment. 4. Chapter 7: Mead Cleaning Company Graded Homework Assignment Section Number: Student Name: Allocate the costs presented in Table 2 to the appropriate activity cost pools (first stage allocation). If a cost is not allocated to a cost pool, enter "0" in the appropriate cell for that cost 1. Travel to/from Jobs Home Carpet Cleaning Service Overhead Costs Wages Cleaning Carpets Total Other Job Support $150,000 $20,000 Cleaning equipment depreciation $80,000 Vehicle expenses $60,000 Office expenses $80,000 Pat Mead's salary $390,000 Activity Cost Pool Totals Compute the activity rates for each activity cost pool. Round calculations to the nearest cent. 2. Overhead Activity Cost Pools Activity for the Year ABC Activity Rate Total Cost blocks of 100 sq. feet per block of 100 sq. feet Cleaning carpets miles Travel to/from jobs per mile jobs Job support per job Other Mead Company recently completed a 5 hundred square foot carpet-cleaning job at the Circle H Ranch- a 50-mile one-way trip from 3 the company's location in Bozeman. Cleaning supplies totaling $23.50 were used on the job. Compute the overhead costs of this job assuming the activity rates listed in the table below (DO NOT USE THE RATES YOU CALCULATED IN PART 2) (second stage allocation). Overhead Activity Cost Pools Activities for Circle H Ranch ABC Cost Assumed ABC Activity Rate $6.25 per block of 100 sq. feet Cleaning carpets Travel to/from jobs $1.00 per mile Job support $35.00 per job 4. Calculate the margin of the Circle H Ranch job using the following: Sales: the current fee of $30 per hundred square feet. b. a. Costs: the ABC overhead costs you calculated in Part 3 and any direct costs given in the assignment. Circle H Ranch Customer Margin Report Sales (Fee to customer) Costs: Total costs Customer margin or (loss) Chapter 7: Mead Cleaning Company Graded Homework Assignment Fall 2019 Mead Cleaning Company is a family-owned business operating out of Bozeman, Montana. For its home carpet cleaning services, the company has always charged a flat fee based on one hundred square feet of carpet cleaned. The current fee is $30 per hundred square feet. The Mead Company home carpet-cleaning fee is a step cost to the customers. For example, the minimum charge for a Mead carpet-cleaning technician to come to a customer's location is $30. If a customer has 101 to 199 square feet of carpet to clean, the fee is $60 ($30 x 2). The Mead family believes this fee structure provides enough revenue to cover its travel costs and provide a profit However, Chris Fenwick, the company's accountant, is becoming concerned that the company might actually not be covering all costs on jobs for some customers. Chris is particularly concerned about the jobs done for ranchers that require considerable travel time. Recently Chris talked with Lee Mead, the current CEO, and Pat Mead, the home carpet-cleaning service manager, about these concerns and suggested that a simple activity- based costing system be implemented After some discussion, Lee and Pat decided on three activity cost pools and their activity measures. This information is presented in Table 1. The "job support activity pool consists of costs related to receiving calls from potential customers, scheduling jobs, billing, resolving issues, etc up Table 1 Overhead Activity Cost Pools & Activity Measures Activity Measure Activity Cost Pool Activity for the Year Cleaning carpets 100 square feet 20.000 blocks of 100 square feet Travel to/from jobs Miles driven 60,000 miles Job support Number of jobs 2,000 jobs Not applicable Other None Organization-sustaining costs and idle capacity costs The total cost of operating the home carpet cleaning services for the year is $430,000 as shown in Table 2. Table 2 Total Home Carpet Cleaning Service Costs $150,000 Wages $40,000 Cleaning supplies 20,000 Cleaning equipment depreciation 80,000 Vehicle expenses 60.000 Office expenses 80,000 Pat Mead's salary $430,000 Total Costs After due consideration, Chris, Lee, and Pat decided to include wages in the overhead activity pools because the technicians also talk with customers who have problems or complaints and work on the company vehicles when needed. Additionally, both of the support staff employees are trained to go out on jobs and do so if needed. Pat strongly believes that asking the technicians and support staff to log how they spent their time would not be helpful and probably would not be received well by the employees. Because of this concern, Lee AC P and Pat decided on how the wages cost wil be allocated to the four cost pools based on their experience with the company. All other distributions of resource consumption across the activites (cost pools) were based on corporate records Upon review of Mead's processes, Chris, Lee and Pat agreed that the cleaning supplies could be treated as a direct cost. Customers will be billed for the number of bottles of cleaning and stain-removing solution opened at their location Resource consumption will be distributed across the activities (cost pools) as shown in Table 3 Table 3 Distribution of Resource Consumption Across Activities (Cost Pools) Travel to/from Jobs Home Carpet Cleaning Service Overhead Costs Cleaning Carpets Job Support Total Other Wages 5% 0 % 70 % 20% 5% 100% Cleaning equipment depreciation Vehicle expenses 30 % 45% 60 % 60 % 100 % 70% 0% 0 % 0 % 55% 100% Office expenses 0 % 0% 40% 100% Pat Mead's salary 0 % 0% 40 % 100% Requirements: Using the information presented above, perform the following calculations. 1. Allocate the costs presented in Table 2 to the appropriate activity cost pools (first stage allocation). If a cost is not allocated to a cost pool, enter "0" in the appropriate cell for that cost Compute the activity rates for each activity cost pool. Round calculations to the nearest cent 2. 3. Mead Company recently completed a 5 hundred square foot carpet-cleaning job at the Circle H Ranch- a 50-mile one-way trip from the company's location in Bozeman. Cleaning supplies totaling $23.50 were used on the job. Compute the overhead costs of this job assuming the activity rates listed in the table provided (DO NOT USE THE RATES YOU CALCUALTED IN PART 2) (second stage allocation). Calculate the margin of the Circle H Ranch job using the following: a. Sales: the current fee of $30 per hundred square feet b. Costs: the ABC overhead costs you calculated in Part 3 and any direct costs given in the assignment. 4. Chapter 7: Mead Cleaning Company Graded Homework Assignment Section Number: Student Name: Allocate the costs presented in Table 2 to the appropriate activity cost pools (first stage allocation). If a cost is not allocated to a cost pool, enter "0" in the appropriate cell for that cost 1. Travel to/from Jobs Home Carpet Cleaning Service Overhead Costs Wages Cleaning Carpets Total Other Job Support $150,000 $20,000 Cleaning equipment depreciation $80,000 Vehicle expenses $60,000 Office expenses $80,000 Pat Mead's salary $390,000 Activity Cost Pool Totals Compute the activity rates for each activity cost pool. Round calculations to the nearest cent. 2. Overhead Activity Cost Pools Activity for the Year ABC Activity Rate Total Cost blocks of 100 sq. feet per block of 100 sq. feet Cleaning carpets miles Travel to/from jobs per mile jobs Job support per job Other Mead Company recently completed a 5 hundred square foot carpet-cleaning job at the Circle H Ranch- a 50-mile one-way trip from 3 the company's location in Bozeman. Cleaning supplies totaling $23.50 were used on the job. Compute the overhead costs of this job assuming the activity rates listed in the table below (DO NOT USE THE RATES YOU CALCULATED IN PART 2) (second stage allocation). Overhead Activity Cost Pools Activities for Circle H Ranch ABC Cost Assumed ABC Activity Rate $6.25 per block of 100 sq. feet Cleaning carpets Travel to/from jobs $1.00 per mile Job support $35.00 per job 4. Calculate the margin of the Circle H Ranch job using the following: Sales: the current fee of $30 per hundred square feet. b. a. Costs: the ABC overhead costs you calculated in Part 3 and any direct costs given in the assignment. Circle H Ranch Customer Margin Report Sales (Fee to customer) Costs: Total costs Customer margin or (loss)