Question

1 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 $12.70 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: Skipped Activity Cost Pool Snow removal Travel to jobs Job support Other (costs of idle capacity and organization-sustaining costs) Activity Measure Activity for the Year Square metres cleaned (00s) Kilometres driven Number of jobs 34, 600 hundred square metres 18,125 kilometres 250 jobs None NA The total cost of operating the company for the year is $420,000, which includes the following costs: $162,000 42,000 22,000 42,000 64,000 88,000 Wages Supplies Snow removal equipment depreciation Vehicle expenses office expenses President's compensation Total cost $420,000 Resource consumption is distributed across the activities as follows:

Answer 1

Solution 1:

First stage allocation of cost to activity cost pools
Particulars	Total Cost	Snow Removal		Travel to Jobs		Job Support		Others
		%	Amount	%	Amount	%	Amount	%	Amount
Wages	$162,000.00	80%	$129,600.00	10%	$16,200.00	0%	$0.00	10%	$16,200.00
Supplies	$42,000.00	100%	$42,000.00	0%	$0.00	0%	$0.00	0%	$0.00
Snow removal Equipment depreciation	$22,000.00	85%	$18,700.00	0%	$0.00	0%	$0.00	15%	$3,300.00
Vehicle Expenses	$42,000.00	0%	$0.00	65%	$27,300.00	0%	$0.00	35%	$14,700.00
Office Expense	$64,000.00	0%	$0.00	0%	$0.00	45%	$28,800.00	55%	$35,200.00
President's Compensation	$88,000.00	0%	$0.00	0%	$0.00	35%	$30,800.00	65%	$57,200.00
Total	$420,000.00		$190,300.00		$43,500.00		$59,600.00		$126,600.00

Solution 2:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Snow Removal	$190,300.00	hundred Square meter cleaned	34600	$5.50
Travel to Jobs	$43,500.00	Kilometers driven	18125	$2.40
Job Support	$59,600.00	Nos of jobs	250	$238.40
Other	$126,600.00	No allocation
Total	$420,000.00

Solution 3:

Computation of Job Cost
Particulars	Amount
Snow Removal (39*$5.50)	$214.50
Travel to Jobs (79*$2.40)	$189.60
Job Support	$238.40
Total Cost	$642.50

Solution 4:

Customer Margin - Activity based costing
Particulars		Amount
Revenue		$495.30
Costs:
Snow Removal	$214.50
Travel to Jobs	$189.60
Job Support	$238.40
Total Cost		$642.50
Product margin		-$147.20