Green Thumb Gardening is a small gardening service that uses activity-based cost
ID: 2553312 • 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: Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high maintenance Travel to jobs Customer billing and service Activity Measure Square feet of lawn Square feet of low maintenance beds Square feet of high maintenance beds iles Number of customers The company already has completed its first stage allocations of costs and has summarized its annual costs and activity as follows Estimated Overhead Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high maintenance Travel to job:s Customer billing and service Expected Activity Cost $ 76,200 185,000 square feet of lawn $ 28,800 27,000 square feet of low maintenance beds 58,800 21,000 square feet of high maintenance beds $ 4,200 18,000 miles $ 8,700 26 customersExplanation / Answer
Answer:-
Computation of activity rate for each of the activity cost pools
Activity Cost Pool
Estimated overhead cost $
Expected Activity
Calculation
Activity Rate
Caring for lawn
76200
square feet of lawn
$76200/185000
$.41 per square foot of lawn
Caring for garden beds-low maintenance
28800
square feet of low maintenance beds
$28800/27000
$1.07 per square foot of low maintenance beds
Caring for garden beds-
high maintenance
58800
square feet of high maintenance beds
$58800/21000
$2.8 per square foot of high maintenance beds
Travel to jobs
4200
miles
$4200/18000
$.23 per mile
Customer billing
and service 8700 customers $8700/26 $334.62per customer
Where
Activity Rate = Estimated Overhead Cost $ / Expected Activity
Activity Cost Pool
Estimated overhead cost $
Expected Activity
Calculation
Activity Rate
Caring for lawn
76200
square feet of lawn
$76200/185000
$.41 per square foot of lawn
Caring for garden beds-low maintenance
28800
square feet of low maintenance beds
$28800/27000
$1.07 per square foot of low maintenance beds
Caring for garden beds-
high maintenance
58800
square feet of high maintenance beds
$58800/21000
$2.8 per square foot of high maintenance beds
Travel to jobs
4200
miles
$4200/18000
$.23 per mile
Customer billing
and service 8700 customers $8700/26 $334.62per customer
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