BUS 630 Week 3 DQ 2 Profitability
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Complete the following exercise and respond to at least two of your fellow students' postings. 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:
Activity Cost Pool
Activity Measure
Activity for the Year
Cleaning carpets
Square feet cleaned (00s)
20,000 hundred
square feet
Travel to jobs
Miles driven
60,000 miles
Job support
Number of jobs
2,000 jobs
Other (costs of idle capacity and organization-sustaining costs)
None
Not applicable
The total cost of operating the company for the year is $430,000, which includes the following costs:
Wages
$ 150,000
Cleaning supplies
40,000
Cleaning equipment depreciation
20,000
Vehicle expenses
80,000
Office expenses
60,000
President's compensation
80,000
$ 430,000
Resource consumption is distributed across the activities as follows:
Distribution of Resource Consumption Across Activities
Cleaning
Travel to
Job
Carpets
Jobs
Support
Other
Total
Wages
70%
20%
0%
10%
100%
Cleaning supplies
100%
0%
0%
0%...