Problem: As You Like It 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 cost 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 has already carried out its first-stage allocations of costs. The company's annual costs and activities are summarized as follows:
|
|
Estimated |
|
|
|
|
|
|
Overhead |
|
|
|
|
| Activity cost Pool |
Cost |
Expected Activity |
|
|
| Caring for lawn |
77,400 |
180,000 |
|
|
|
| Caring for garden beds-low maintenance |
30,000 |
24,000 |
|
|
|
| Caring for garden beds high maintenance |
57,600 |
18,000 |
|
|
|
| Travel to jobs |
4,200 |
15,000 |
|
|
|
| Customer billing and service |
8,700 |
30 |
|
|
|
| |
|
|
|
|
|
|
| Activity Cost Pool |
Activity Rate |
|
|
|
|
| Caring for lawn |
0.43 |
per square foot of lawn |
|
|
| Caring for garden beds- low maintenance |
1.25 |
per square foot of low maintenance beds |
| Caring for garden beds- high maintenance |
3.20 |
per square foot of high maintenance beds |
| Travel to jobs |
0.28 |
per mile |
|
|
|
| Customer billing and service |
290.00 |
per customer |
|
|