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Allocation of costs using Activity Based Costing.

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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:

Activity cost Pool  Estimated Overhead Cost Expected Activity 
Caring for lawn 
180,000 square feet of lawn 
Caring for garden beds—low maintenance 
24,000 square feet of low-maintenance beds 
Caring for garden beds high maintenance 
18,000 square feet of high-maintenance beds 
Travel to jobs 
15,000 miles 
Customer billing and service 
30 customers 

Compute the activity rate for each of the activity cost pools. (Omit the “$” sign in your response. Round your answers to 2 decimal places.)

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 $3.2 per square foot of high maintenance beds
Travel to jobs $0.28 per mile
Customer billing and service $290 per customer

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