Wild Leopard is a hotel that provides eco-tourism experience to foreign tourists in Sri Lanka. The...
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Wild Leopard is a hotel that provides eco-tourism experience to foreign tourists in Sri Lanka. The hotel provides two types of luxury tented chalets; Standard and Deluxe. The monthly operating overhead cost of the company is Rs. 1.8 million. The company identifies 60% of these costs with the operation cost center and the balance with the maintenance cost center. Costs of the operation center are absorbed based on the expected occupancy level of room nights. Maintenance costs are absorbed as 31% of the direct costs of each chalet. Under normal circumstances, the company estimates an occupancy level of 80 room nights for a standard chalet and 50 room nights for a deluxe chalet per month. The management wishes to change the current absorption costing system to the Activity Based Costing system for computing the cost per room night. The following information is available. The company has allocated the operating overhead cost to the activities as given below. Cost (Rs.) 50,000 Activity Luggage delivery Reception and billing 350,000 Restaurant operation 800,000 Swimming pool maintenance 460,000 Handling pickup and drop off 140,000 Cost driver Number of deliveries No of bills 120 80 No of Kitchen Order Tickets 75 No of guests 160 No of pickups/drop-offs 120 No of Kitchen Order Tickets No of guests No of pickups/drop-offs Estimated volumes of cost drivers for two types of chalets are given below. Cost driver Standard Deluxe Number of deliveries No of bills 70 50 45 110 75 Direct cost per room, per night for a standard chalet is Rs.12,500 while a deluxe chalet is Rs.17,000. Required: a) Compute the total operating cost (i.e direct cost plus operating overhead cost) per room night of each chalet under Absorption Costing and Activity Based Costing. (07 marks) b) Discuss the benefits of applying Time Driven ABC method instead of traditional ABC method by Wild Leopard Company. (03marks) (Total 10marks) Wild Leopard is a hotel that provides eco-tourism experience to foreign tourists in Sri Lanka. The hotel provides two types of luxury tented chalets; Standard and Deluxe. The monthly operating overhead cost of the company is Rs. 1.8 million. The company identifies 60% of these costs with the operation cost center and the balance with the maintenance cost center. Costs of the operation center are absorbed based on the expected occupancy level of room nights. Maintenance costs are absorbed as 31% of the direct costs of each chalet. Under normal circumstances, the company estimates an occupancy level of 80 room nights for a standard chalet and 50 room nights for a deluxe chalet per month. The management wishes to change the current absorption costing system to the Activity Based Costing system for computing the cost per room night. The following information is available. The company has allocated the operating overhead cost to the activities as given below. Cost (Rs.) 50,000 Activity Luggage delivery Reception and billing 350,000 Restaurant operation 800,000 Swimming pool maintenance 460,000 Handling pickup and drop off 140,000 Cost driver Number of deliveries No of bills 120 80 No of Kitchen Order Tickets 75 No of guests 160 No of pickups/drop-offs 120 No of Kitchen Order Tickets No of guests No of pickups/drop-offs Estimated volumes of cost drivers for two types of chalets are given below. Cost driver Standard Deluxe Number of deliveries No of bills 70 50 45 110 75 Direct cost per room, per night for a standard chalet is Rs.12,500 while a deluxe chalet is Rs.17,000. Required: a) Compute the total operating cost (i.e direct cost plus operating overhead cost) per room night of each chalet under Absorption Costing and Activity Based Costing. (07 marks) b) Discuss the benefits of applying Time Driven ABC method instead of traditional ABC method by Wild Leopard Company. (03marks) (Total 10marks)
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Quantitative Methods for Business
ISBN: 978-0324651751
11th Edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey cam
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