Question

Exercise 7-3 Compute Activity Rates [LO7-3] Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Activity Cost Pool Activity Measure Caring for lawn Square feet of lawn Caring for garden beds–low maintenance Square feet of low maintenance beds Caring for garden beds–high maintenance Square feet of high maintenance beds Travel to jobs Miles Customer billing and service Number of customers The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows: Activity Cost Pool Estimated Overhead Cost Expected Activity Caring for lawn $ 81,000 185,000 square feet of lawn Caring for garden beds–low maintenance $ 33,600 25,000 square feet of low maintenance beds Caring for garden beds–high maintenance $ 51,110 19,000 square feet of high maintenance beds Travel to jobs $ 4,000 16,000 miles Customer billing and service $ 8,300 38 customers

Required: 1. Compute the activity rate for each of the activity cost pools.

2. Based on the activity rates calculated what is the total cost assigned to the new customer for Job 87? Job 87 is for a new customer and they require the following services: Care for lawn 1200 square feet Maintain high maintenance garden bed 450 square feet Travel to and from the job 15 miles total

Answer 1

Activity cost pool	Activity rate		Formulas
Caring for lawn	0.44	per square ft of lawn	=81000/185000
Caring for garden beds-low maintenance	1.34	per square ft of low maintenance beds	=33600/25000
Caring for garden beds-high maintenance	2.69	per square ft of high maintenance beds	=51110/19000
Travel to jobs	0.25	per mile	=4000/16000
Customer billing and service	218.42	per customer	=8300/38
2
Caring for lawn	528.00	=1200*0.44
Caring for garden beds-high maintenance	1210.50	=450*2.69
Travel to jobs	3.75	=15*0.25
Customer billing and service	218.42
Total cost assigned for Job 87	1960.67	or 1961