Question

# Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for...

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 \$ 84,200 180,000 square feet of lawn Caring for garden beds–low maintenance \$ 36,800 26,000 square feet of low maintenance beds Caring for garden beds–high maintenance \$ 55,000 20,000 square feet of high maintenance beds Travel to jobs \$ 4,000 17,000 miles Customer billing and service \$ 8,300 28 customers

Required:

Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)

Solution

Calculating activity rate for each of the activitie cost pool

1. Caring for lawn activity rate

= Estimated overhead cost/ Expected Activity

=84,200/180000

=\$0.46 per square feet of lawn.

2. Caring for garden bed-low maintenance

= Estimated overhead cost/ Expected Activity

= 36800/26000

=\$ 1.41 per square feet of low

3. Caring for garden bed-high maintenance

=55000/20000

\$2.75

4 Travel to job activity rate

= Estimated overhead cost/ Expected Activity

=4000/17000

= \$0.23 per mile

5. Customer billing and service activity rate

= Estimated overhead cost/ Expected Activity

= 8300/28

=\$296.42 per customer.

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