Green Thumb Gardening is a small gardening service that uses activity-based cost
ID: 2341266 • Letter: G
Question
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:
The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows:
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
Explanation / Answer
Answer
Activity Cost Pool
Activity Rate
Caring for lawn
$ 0.46
per square ft of lawn
Caring for garden beds—low maintenance
$ 1.05
per square ft of low maintenance beds
Caring for garden beds—high maintenance
$ 2.81
per square ft of high maintenance beds
Travel to jobs
$ 0.18
per mile
Customer billing and service
$ 250.00
per customer
Working note –Calculation of activity rate
Activity Cost Pools
Total Costs
Total Activity
Activity Rates
(A)
(B)
(A/B)
Caring for lawn
$ 77,800.00
170,000
$ 0.46
per square ft of lawn
Caring for garden beds—low maintenance
$ 30,400.00
29,000
$ 1.05
per square ft of low maintenance beds
Caring for garden beds—high maintenance
$ 64,630.00
23,000
$ 2.81
per square ft of high maintenance beds
Travel to jobs
$ 3,600.00
20,000
$ 0.18
per mile
Customer billing and service
$ 7,500.00
30
$ 250.00
per customer
Activity Cost Pool
Activity Rate
Caring for lawn
$ 0.46
per square ft of lawn
Caring for garden beds—low maintenance
$ 1.05
per square ft of low maintenance beds
Caring for garden beds—high maintenance
$ 2.81
per square ft of high maintenance beds
Travel to jobs
$ 0.18
per mile
Customer billing and service
$ 250.00
per customer
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