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 $12.30 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 38,800 hundred square metres 27,380 kilometres 200 jobs None NA The total cost of operating the company for the year is $472,500, which includes the following costs: Wages Supplies Snow removal equipment depreciation Vehicle expenses Office expenses President's compensation $183,000 45,500 25,500 45,500 71,000 102,000 Total cost $472,500 Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption across Activity Cost Pools Travel to Jobs Job Support Other 20% 03 10% 0* Wages Supplies Snow removal equipment depreciation Vehicle expenses office expenses President's compensation Snow Removal 70% 100% 808 08 08 0% OOOOO 0% 0% Total 100% 100% 100% 100% 100% 100% 30% do op op op Слоо 45%

Answer 1

1
	Snow removal	Travel to Jobs	Job support	Other	Total
Wages	128100	36600	0	18300	183000
Supplies	45500	0	0	0	45500
Snow removal equipment depreciation	20400	0	0	5100	25500
Vehicle expenses	0	31850	0	13650	45500
Office expense	0	0	28400	42600	71000
President’s compensation	0	0	45900	56100	102000
Total cost	194000	68450	74300	135750	472500
2
Activity Cost Pool	Activity Rate
Snow removal	5.00	per hundred square metres	=194000/38800
Travel to jobs	2.50	per kilometre	=68450/27380
Job support	371.50	per job	=74300/200
3
Activity Cost Pool	ABC cost
Snow removal	230.00	=46*5
Travel to jobs	215.00	=86*2.50
Job support	371.50
Total	816.50
4
Sales		565.80
Costs:
Snow removal	230.00
Travel to jobs	215.00
Job support	371.50	816.50
Customer margin		-250.70