The Superior Gardening Service provides gardening 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.
Activity Cost Pool Total Cost Total Activity
Gardening $125,425 17,300 hours
Job support 28,134 1,775 jobs
Client support 4,530 280 clients
Other 150,000 Not applicable
Total $308,089
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. One particular client, the Gutierrez family, requested 24 jobs during the year that required a total of 175 hours of gardening. For this service, the client was charged $2,500.
Required:
a. Compute the activity rates for the activity cost pools. Round off all calculations for the nearest 2 decimals.
b. Using the activity-based costing system, compute the customer margin for the Gutierrez family. Round off all calculations to the nearest 2 decimals.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are allocated to customers on the basis of gardening hours. Compute the margin for the Gutierrez family. Round off all calculations to the nearest 2 decimals.
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