Question

The Green Thumb Gardening Service provides gardening services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

Activity Cost Pool   Total Cost    Total Activity

Gardening $150,575 18,500 hours

Job support 29,375 1,815 jobs

Client support 5,270 270 clients

Other    65,000 Not applicable

Total    $250,220

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Guzman family, requested 26 jobs during the year that required a total of 150 hours of gardening. For this service, the client was charged $3,000.

Required:
a. Compute the activity rates for the activity cost pools. Round off all calculations for the nearest 2 decimals.
b. Using the activity-based costing system, compute the customer margin for the Guzman family. Round off all calculations to the nearest 2 decimals.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of gardening hours. Compute the margin for the Guzman family. Round off all calculations to the nearest 2 decimals.

Answer 1

Req 1.
Activity rate
Activity		Total OH	Driver	Rate
gardening		150575	18500	8.14
Job Support	29375	1815	16.18
Client support	5270	270	19.52
Req 2.
OH applied
Activity		Driver used	Rate	Overheads applied
gardening		150	8.14	1221
Job Support	26	16.18	420.68
Client support	1	19.52	19.52
	Total Overheads cost	1661.2
	Revenue from Client		3000
	Customer Margin		1338.8
Req 3.
Total Overheads			250220
Divide: Total Grdening hours		18500
Oh rate per Gardening hour		13.53
Multiply: Gardening hours used in Jobs	150
Overheads applied			2029.5
Customer margin:
Revenue charged from Job		3000
Less: Overheads applied		2029.5
Customer margin:			970.5