Question

Kenosha Winter Services is a small, family-owned snow-removal business. For its services, the company has always charged a flat fee per hundred square metres of snow removal. The current fee is $11.60 per hundred square metres. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on more remote properties that require considerable travel time. The owner’s daughter, home from school for the summer, has suggested investigating this question using ABC. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:

Activity Cost Pool	Activity Measure	Activity for the Year
Snow removal	Square metres cleaned (00s)	41,385 hundred square metres
Travel to jobs	Kilometres driven	18,650 kilometres
Job support	Number of jobs	250 jobs
Other (costs of idle capacity and      organization-sustaining costs)	None	NA

The total cost of operating the company for the year is $457,500, which includes the following costs:

Wages	$	177,000
Supplies		44,500
Snow removal equipment depreciation		24,500
Vehicle expenses		44,500
Office expenses		69,000
President’s compensation		98,000
Total cost	$	457,500

Resource consumption is distributed across the activities as follows:

	Distribution of Resource Consumption across Activity Cost Pools
	Snow Removal			Travel to Jobs			Job Support			Other			Total
Wages		80	%		10	%		0	%		10	%		100	%
Supplies		100	%		0	%		0	%		0	%		100	%
Snow removal equipment depreciation		85	%		0	%		0	%		15	%		100	%
Vehicle expenses		0	%		65	%		0	%		35	%		100	%
Office expenses		0	%		0	%		45	%		55	%		100	%
President’s compensation		0	%		0	%		35	%		65	%		100	%

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

1. Prepare the first-stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a 0 wherever it is required.)

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

Answer 1

1.

First-stage allocation of costs to the activity cost pools
Activity	Wages		Supplies		Snow removal equipment depreciation		Vehicle expenses		Office expenses		President’s compensation
	Ratio	Amount	Ratio	Amount	Ratio	Amount	Ratio	Amount	Ratio	Amount	Ratio	Amount	Total Cost activitywise
Snow Removal	80%	1,41,600	100%	44,500	85%	20,825	0%	0	0%	0	0%	0	2,06,925
Travel to Jobs	10%	17,700	0%	0	0%	0	65%	28,925	0%	0	0%	0	46,625
Job Support	0%	0	0%	0	0%	0	0%	0	45%	31,050	35%	34,300	65,350
Other	10%	17,700	0%	0	15%	3,675	35%	15,575	55%	37,950	65%	63,700	1,38,600
Total	100%	1,77,000	100%	44,500	100%	24,500	100%	44,500	100%	69,000	100%	98,000	4,57,500

2.

Activity Rate for activity cost pools
Activity cost pools	Activity measure	Activity for the Year	Total Cost activitywise	Activity Rate
Snow Removal	Square metres cleaned (00s)	41,385 hundred square metres	2,06,925	5.00
Travel to Jobs	Kilometres driven	18,650 kilometres	46,625	2.50
Job Support	Number of jobs	250 jobs	65,350	261.40
Other	None	NA	1,38,600	NA

Activity Rate for Other activity is not applicable as their is no specific activity allocated to other criteria. Others is costs of idle capacity and organization-sustaining costs thus no specific activity allocation can be done.