Green Thumb Gardening is a small gardening service that uses activity-based cost
ID: 3145772 • 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 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 $ 85,800 180,000 square feet of lawn Caring for garden beds–low maintenance $ 38,400 30,000 square feet of low maintenance beds Caring for garden beds–high maintenance $ 68,160 24,000 square feet of high maintenance beds Travel to jobs $ 4,000 21,000 miles Customer billing and service $ 8,300 32 customers Required: Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places.)
Explanation / Answer
Activity Rate=estimated overhead cost/expected activity
case 1
Caring for lawn
Activity Rate=85000/180000=0.47per square foot of lawn
Case 2
Caring for garden beds-low maintenance
Activity Rate=38400/30000=1.28per square foot of low maintenance beds
Case 3
Caring for garden beds -hign maintenance
Activity Rate=68160/24000=2.84per square foot of high maintenance beds
Case 4
Travel to jobs
Activity Rate =4000/21000=0.19per mile
Case 5
Customer billing and service
Activity Rate =8300/32=259.38 per customer
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