The Sparkle Cleaning Company Provides Housecleaning Services to Its Clients

The Sparkle Cleaning 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:
$$\begin{array} { l r c } { \text { Activity Cost Pool } } & \text { Total Cost } & \text { Total Activity } \\\text { Cleaning } & \$ 101,574 & 16,200 \text { hours } \\\text { Job support } & 32,724 & 1,80 \text { jobs } \\\text { Client support } & 5,472 & \text { 320 clients } \\\text { Other } & 100,000 & \text { Not applicable } \\\text { Total } & \$ 239,770 &\end{array}$$
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Smith family, requested 32 jobs during the year that required a total of 192 hours of housecleaning. For this service, the client was charged $2,200.
Required:
a. Using an activity-based costing system, compute the client margin for the Smith family. (Round 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 clients on the basis of cleaning hours. Compute the margin for the Smith family. (Round all calculations to the nearest whole cent.)

Correct Answer:

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a. The first step is to compute activity...

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