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ACCT 386 - Week 5 - Homework - Question 3

ACCT 386 - Week 5 - Homework - Question 3
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ACCT 386 - Week 5 - Homework - Question 3

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Question 3

Gore Range Carpet Cleaning is a family-owned business in Eagle-Vail, Colorado. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.95 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 more 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:

  Activity Cost Pool               

Activity Measure    

Activity for the Year       

  Cleaning carpets

Square feet cleaned (00s)

9,500

 hundred square feet  

  Travel to jobs

Miles driven

387,000

 miles

  Job support

Number of jobs 

1,700

 jobs

  Other (organization-sustaining
    and idle capacity costs)

None

 Not applicable


     The total cost of operating the company for the year is $347,000, which includes the following costs:

 

 

 

  Wages

$

147,000   

  Cleaning supplies

 

25,000   

  Cleaning equipment depreciation

 

11,000   

  Vehicle expenses

 

33,000   

  Office expenses

 

59,000   

  President’s compensation

 

72,000   

 



  Total cost

$

347,000   

 






     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

75

%

13

%

0

%

12

%

100

%

  Cleaning supplies

100

%

0

%

0

%

 0

%

100

%

  Cleaning equipment depreciation

72

%

0

%

0

%

28

%

100

%

  Vehicle expenses

0

%

79

%

0

%

21

%

100

%

  Office expenses

0

%

0

%

65

%

35

%

100

%

  President’s compensation

0

%

0

%

28

%

72

%

100

%


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