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 $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: Activity Cost Pool Snow removal Travel to jobs Job support Other (costs of idle capacity and organization-sustaining costs) Activity Measure Square metres cleaned (00s) Kilometres driven Number of jobs Activity for the Year 43,600 hundred square metres 25,350 kilometres 200 jobs None NA

Answer 1

1
	Snow removal	Travel to Jobs	Job support	Other	Total
Wages	144900	41400	0	20700	207000
Supplies	49500	0	0	0	49500
Snow removal equipment depr.	23600	0	0	5900	29500
Vehicle expenses	0	34650	0	14850	49500
Office expense	0	0	31600	47400	79000
President’s compensation	0	0	53100	64900	118000
Total cost	218000	76050	84700	153750	532500
2
Activity Cost Pool	Activity Rate
Snow removal	5.00	per hundred square metres	=218000/43600
Travel to jobs	3.00	per kilometre	=76050/25350
Job support	423.50	per job	=84700/200
3
Activity Cost Pool	ABC cost
Snow removal	270.00	=54*5
Travel to jobs	282.00	=94*3
Job support	423.50
Total	975.50
4
Sales		685.80
Costs:
Snow removal	270.00
Travel to jobs	282.00
Job support	423.50	975.50
Product margin		-289.70