Asked by Haddon Barrett on Apr 24, 2024
Verified
The Kamienski Cleaning Brigade Company provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Whiddon family, requested 15 jobs during the year that required a total of 60 hours of housecleaning. For this service, the client was charged $1,170.Required:a. Using the activity-based costing system, compute the customer margin for the Whiddon family. Round off all calculations to the nearest whole cent.b. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Whiddon family. (Round off all calculations to the nearest whole cent.)
Activity-Based Costing
A technique in cost accounting which allots overhead and indirect costs to related products and services, dependent on the activities they engage in.
Activity Cost Pools
Groups of individual costs driven by the same cost drivers, used in activity-based costing to allocate costs more accurately.
Customer Margin
The profit margin that a company earns from a particular customer, taking into account all revenues and costs associated with that customer.
- Immerse in the fundamental principles of Activity-Based Costing (ABC).
- Determine customer margins by analyzing Activity-Based Costing information.
Verified Answer
The overhead cost charged to the family is:
The customer margin for the family is computed as follows:
b.The margin if all costs are allocated on the basis of cleaning hours:Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total amount of the allocation base = $612,408 ÷ 21,700 hours= $28.22 per hour
Learning Objectives
- Immerse in the fundamental principles of Activity-Based Costing (ABC).
- Determine customer margins by analyzing Activity-Based Costing information.
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