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Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana
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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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:

AND SO ON


Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Using Exhibit 7-5 as a guide, prepare the first-stage allocation of costs to the activity cost pools.
Using Exhibit 7-6 as a guide, compute the activity rates for the activity cost pools.

The company recently completed a 5 hundred square foot carpet -cleaning job at the Flying N ranch--a 75-mile round-trip journey from the company's offices in Bozeman. Compute the cost of this job using the activity-based costing system.

The revenue from the Flying N ranch was $140 (5 hundred square feet @ $28 per hundred square feet). Using Exhibit 7-11 as a guide, prepare a report showing the margin from this job.
What do you conclude concerning the profitability of the Flying N ranch job? Explain.
What advice would you give the president concerning pricing jobs in the future?

 

FILE: MS WORD

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