Question

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.

Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

___________________________________________________________________

Activity Estimated Allocation Base Estimated Quantity

Cost of Allocation

Base____

Admission \) 60,000 Number of admissions 20,000

Cleaning 240,000 Cleaning direct labor hours 100,000

Grooming 80,000 Grooming direct labor hours 4,000

Total indirect costs $ 380,000________________________________________

Requirements

1. Calculate the predetermined overhead allocation rate for each activity.

Short answer

Predetermined overhead allocation rate

Admission cost: $3

Cleaning cost: $2.4

Grooming cost: $20

Step-by-step solution

Step-by-Step-SolutionStep 1: Admission cost

$\begin{array}{c}\mathbf{Predetermined}\mathbf{}\mathbf{Overhead}\mathbf{}\mathbf{Allocation}\mathbf{}\mathbf{Rate}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{cost}}{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{quantity}\mathbf{}\mathbf{of}\mathbf{}\mathbf{allocationbase}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{60}\mathbf{,}\mathbf{000}}{\mathbf{20}\mathbf{,}\mathbf{000}}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\end{array}$

Cleaning test

$\begin{array}{c}\mathbf{Predetermined}\mathbf{}\mathbf{Overhead}\mathbf{}\mathbf{AllocationRate}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{cost}}{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{quantity}\mathbf{}\mathbf{of}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{base}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{240}\mathbf{,}\mathbf{000}}{\mathbf{100}\mathbf{,}\mathbf{000}}\\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{4}\end{array}$

Grooming cost

$$\begin{gathered} \mathbf{Predetermined}\mathbf{}\mathbf{Overhead}\mathbf{}\mathbf{Allocation}\mathbf{}\mathbf{Rate}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{cost}}{\mathbf{Total}\mathbf{}\mathbf{estimated}\mathbf{}\mathbf{quantity}\mathbf{}\mathbf{of}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{base}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}}{\mathbf{4}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{20} \end{gathered}$$