70.2K

Verified Solution

Link Copied!

Problem 7-20 (Static) Evaluating the Profitability of Services (L07-2, L07-3, L07-4, L07-5) 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 $28 per hundred square feet. However, there "Is some question about whether the company is actually making any money on jobs for some customers-particularly those located on remote ranches that require considerable travel time. The owner's 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 carpeta Square feet cleaned (008) 20,000 hundred square feet Travel to Jobs Miles driven 60,000 miles Job support Number of Jobs 2,000 Jobs Other (organization sustaining costs and Lale capacity costs) None Not applicable The total cost of operating the company for the year is $430,000 which includes the following costs: Wagen Cleaning supplies Cleaning equipment depreciation Vehicle expenses ortice expenses President's compensation Total cost 150,000 40,000 20,000 80.000 60,000 30.000 $430,000 Resource consumption is distributed across the activities as follows: Distribution of source Consumption across Activities Cleaning Travel to Carpet Job Wayos 701 200 Cleaning supplies 1008 01 Cleaning equipment depreciation BON 01 Vehicle expenses ON 600 office expenses 08 Presidente compensation 09 08 Job support 0 08 0 00 450 401 Other 10 00 200 405 550 600 Total 1008 100 1001 1000 1001 1000 00 Help acters 6-7 Open Book Test-Due 109 MIDNIGHT Support O 1 Distribution of our consumption estivities Cleaning Travel to Carpet Job 200 201 cleaning supplies 1003 cleanisent depreciation 20 os vetele expenses CON office expenses 01 President's compensation other 100 08 201 400 00 Total 1000 1001 TO 100 100 1001 00 450 403 350 60 Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on 02:05. 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 500 square foot carpet-cleaning job at the Flying N Ranch 75-mile round-trip journey from the company's offices in Bozeman Compute the cost of this job using the activity-based costing system. 4. The revenue from the Flying N Ranch was 5140 (500 square feet o 528 per hundred square feet). Calculate the customer margin earned on this job Complete this question by entering your answers in the tabs below. Required: Required 2 Required) Required 4 The revenue from the Flying n Ranch was $140 (500 square feet O $28 per hundred square feet). Calculate the customer margin earned on this job. (Negative customer margins should be indicated with a minus sign. Round your intermediate calculations and Moal answers to 2 decimal places.) Customer margin

Answer & Explanation Solved by verified expert

See Answer