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Hi, i want to ask, this is the question 11.
Hi, i want to ask, this is the question
11.29 Contrasting the use of an activity cost driver with a volume-based cost driver
Better Pet Care Services is located in rural Victoria, and treats farm animals and domestic pets. Providing veterinary care to the farm animals requires travel to the individual farms in the area, while veterinary care to domestic pets is usually conducted in the surgery located in the town. One of the partners, Dr Al Sashon, recently attended a small business management course in Melbourne. He was particularly interested in the discussions on activity-based analysis, and how the technique could better identify the costs of providing different services. His partner, Dr Jack Russell, prefers to keep the accounting records simple, and would prefer to maintain the current system of allocating indirect costs based on professional labour hours. However, the partners did reach an agreement to undertake a comparison of the current indirect cost allocation and the proposed activity cost focus. The following information was collected.
Total expected
Use of cost driver*
Activity cost
pool
Cost driver
Estimated
cost
use of cost
driver
Farm
animals
Domestic
pets
Medication
Prescriptions
$128 000
8 000
3 600
4 400
Surgery
Operations
130 000
1 600
400
1 200
Travel
Kilometres
56 000
56 000
52 000
4 000
Consultations
Appointments
66 000
6 000
1 200
4 800
Administration
Professional hours
60 000
10 000
4 000
6 000
Kennel services#
80 000
$520 000
*Expressed in units of measure of the driver.
#Kennel services will now be directly traced as records will be kept of pets using this service.
Direct costs are $300 000 for farm animals and $200 000 (prior to inclusion of kennel services) for domestic pets.
b. Calculate the indirect cost allocation for farm animals and domestic pets using existing methods.
I don't know how to answer for question b?
