19-4TI - Horngren'S Financial And Managerial Accounting

Question

Clancy’s Carpet Cleaning Services uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates:

                 Activity                    Allocation Base                      Allocation Rate

                 Supplies              Number of square feet             \( 0.05 per square foot

                 Travel                   Number of customer sites      \) 20.00 per site

 

Clancy cleans the carpets for an apartment management firm. When a renter moves out, the apartment management firm contacts Clancy to clean the carpets in preparation for a new tenant. During the past month, Clancy cleaned the carpets of 23 apartments with 1,200 square feet each. What amount of indirect costs should Clancy allocate to the apartment firm for the month?

Step-by-Step Solution

Answer

Total Indirect Cost: $1,840

Calculation of Supplies cost

$$\begin{gathered} \mathbf{Supply}\mathbf{ }\mathbf{cost}\mathbf{=}\mathbf{Allocation}\mathbf{ }\mathbf{rate}\mathbf{\times }\mathbf{Each}\mathbf{ }\mathbf{carpet}\mathbf{ }\mathbf{size}\mathbf{\times }\mathbf{No}\mathbf{.}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{sites} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{05}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\mathbf{23} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{380} \end{gathered}$$

Calculation of Travel cost

$$\begin{gathered} \mathbf{Travel}\mathbf{ }\mathbf{cost}\mathbf{=}\mathbf{Per}\mathbf{ }\mathbf{site}\mathbf{ }\mathbf{rate}\mathbf{\times }\mathbf{No}\mathbf{.}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{sites} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{20}\mathbf{\times }\mathbf{23} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{460} \end{gathered}$$

Total Indirect Cost

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{indirect}\mathbf{ }\mathbf{cost}\mathbf{=}\mathbf{Supplies}\mathbf{ }\mathbf{cost}\mathbf{+}\mathbf{Travel}\mathbf{ }\mathbf{cost} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1380}\mathbf{+}\mathbf{\$}\mathbf{460} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1840} \end{gathered}$$