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.

Required:
a. Identify the cost objects for the analysis,
b. Calculate the indirect cost allocation for farm animals and domestic pets using existing methods.
c. Determine the activity cost rates for each activity.
d. Assign the activity cost to the farm animals and the domestic pets using the activity rates calculated in c. above.
e. Calculate the full (total) cost for both farm animals and domestic pets under both the traditional approach and the activity approach.
f. Compare the results in e. - can you explain any differences?
g. What recommendations would you make to the partners in relation to the appropriate costing system for the service?

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Total Use of cost driver* expected Activity cost Cost driver Estimated use of Farm Domestic pool cost cost animals pets driver Surgery Travel Consultations Appointments Administration Professional Medication criptions $128 000 Operations Kilometres 130 000 56 000 66 000 60 000 8 000 1 600 56 000 6 000 10 000 3 600 400 52 000 1200 4 000 4 400 1200 4 000 4 800 6 000 hours Kennel 80 000 services# $520 000