Green Thumb Gardening is a small gardening service that uses activity-based cost

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                                                   activity measure

Caring for lawn                                                       square feet lawn

Caring for garden beds low - maintenance              square feet of low maintenance beds

Caring for garden beds high - maintenance               square feet of high - maintenance bds

Travel to jobs                                                          Miles

Customers billing and service                                  Number of customers

The company has already 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                                                $ 72,000                               150,000 square feet of lawn

Caring for garden beds low - maintenance         $ 26,000                             20,000 square feet of low - maintenance beds

Caring for garden beds high - maintainance       $ 41,400                               15,000 square feet of high - maintenance beds

Travel to jobs                                                  $ 3,250                                 12,500 miles

Customers billing and service                           $ 8,750      25 customers                                       

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

Explanation / Answer

Estimated overhead cost expected activity activity rates individual Caring for lawn $72,000 150,000 $0.48 Caring for beds low maintenance $26,000 20,000 $1.30 Caring for beds high maintenance $41,400 15,000 $2.76 Travel to Jobs $3250 12500 $0.26 Customer Billings and services $8750 25 $350

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