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Unformatted text preview: P8-17 Gallatin Carpet Cleaning1. First-Stage Allocation of Resource CostsActivityWagesVehicle expenseCleaning Carpets$105,000 $40,000 $16,000 $- Travel$30,000 $- $- $48,000 Job Support$- $- $- $- Other$15,000 $- $4,000 $32,000 Total$150,000 $40,000 $20,000 $80,000 2. Activity Cost Pool RatesActivity Cost Pool at CDGTotal CostTotal ActivityActivity RateCleaning Carpets$161,000 20,000 $8.05 per hundred sq. fTravel$78,000 60,000 $1.30 per mileJob Support$59,000 2,000 $29.50 per jobOther$132,000 N/AN/A3. Cost of Flying N Ranch JobActivity Cost PoolActivity RateUsageActivity CostCleaning Carpets$8.05 5 $40.25 Travel$1.30 75 $97.50 Job Support$29.50 1 $29.50 Total ABC Cost$167.25 4. ABC Margin For Flying N Ranch JobRevenue$140.00 Cleaning Carpets$40.25 Travel$97.50 Job Support$29.50 Total ABC Costs$167.25 ABC Margin$(27.25) 5. ConclusionsBased on ab activity-based approach to cost measurement, the Flying N Ranch job is losing money. This seemdue mainly to the distance involved. The breakeven travel costs correspond to slightly over a 50 mile round trCare must be exercised when interpreting ABC studies since they include costs that may not be relevant for aaccept/reject decision. For example, Job Support costs may be sunk in as much as they represent fixed costswhich could not be avoided if this job were rejected.6. RecommendationsJobs like Flying N Ranch should only be accepted at this price if there is idle capacity in Job Support. Otherwthey should either be rejected or a higher price charged for jobs that require a lot of travel. Another alternativeto establish a multi-tiered pricing structure that incorporates a fixed cost per job; a lower cost for cleaning (bashundred square feet); and a charge for distances beyond a certain radius (say, 50 miles round trip). In this wathey can be more competitive for those jobs within their local area while still being able to attract some businefrom outside their immediate vicinity....
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This note was uploaded on 02/10/2011 for the course UGBA 102B taught by Professor Fan during the Spring '08 term at University of California, Berkeley.
- Spring '08