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 $11.55 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)	40,055 hundred square metres
Travel to jobs	Kilometres driven	20,625 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 $442,500, which includes the following costs:

Wages	$	171,000
Supplies		43,500
Snow removal equipment depreciation		23,500
Vehicle expenses		43,500
Office expenses		67,000
President’s compensation		94,000
Total cost	$	442,500

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.)

3. The company recently completed a 4,200-square-metre snow removal job at Hometown Hardware—a 82-kilometre round-trip journey from Kenosha’s offices. Compute the cost of this job using the ABC system. (Round your answers to 2 decimal places.)

4. The revenue from the Hometown Hardware job was $485.10 (4,200 square metres at $11.55 per hundred square metres). Prepare a report showing the margin from this job. (Round your answers to 2 decimal places.)

Answer 1

1
	Snow removal	Travel to Jobs	Job support	Other	Total
Wages	136800	17100	0	17100	171000
Supplies	43500	0	0	0	43500
Snow removal equipment depreciation	19975	0	0	3525	23500
Vehicle expenses	0	28275	0	15225	43500
Office expense	0	0	30150	36850	67000
President’s compensation	0	0	32900	61100	94000
Total cost	200275	45375	63050	133800	442500
2
Activity Cost Pool	Activity Rate
Snow removal	5.00	per hundred square metre	=200275/40055
Travel to jobs	2.20	per kilometre	=45375/20625
Job support	252.20	per job	=63050/250
3
Activity Cost Pool	ABC cost
Snow removal	210.00	=42*5
Travel to jobs	180.40	=82*2.20
Job support	252.20
Total cost	642.60
4
	Customer Margin—Activity-Based Costing
Sales		485.10
Costs:
Snow removal	210.00
Travel to jobs	180.40
Job support	252.20	642.60
Customer margin		-157.50