Farm and Home Veterinary Clinic is a small-town partnership that offers two primary services, farm animal services and pet care services. Providing veterinary care to farm animals requires travel to the farm animal (house calls), while veterinary care to pets generally requires that the pet be brought into the clinic. As part of an investigation to determine the contribution that each of these two types of services makes to overall profit, one partner argues for allocating overhead using activity-based costing while the other partner argues for a more simple overhead cost allocation on the basis of direct labor hours. The partners agree to use next year's budgeted data, as prepared by their public accountant, for analysis and comparison purposes. The following overhead data are collected to develop the comparison.

Instructions:

(a) Using traditional product costing as proposed by one partner, compute the total overhead cost assigned to both services of Farm and Home Veterinary Clinic.

(b) (1) Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
(2) Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.

(c) Classify each of the activities as a value-added activity or a non-value-added activity.

(d) Comment on the comparative overhead cost assigned to the two services under both traditional costing and \(\mathrm{ABC}\).

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Expected Use of Expected Use of Cost Drivers Estimated Cost by Service Activity Cost Pools Cost Drivers Overhead Drivers Farm Animals Pets Drug treatment Treatments $ 64,000 4,000 1,700 2,300 Surgery Operations 70,000 800 200 600 Travel Mileage 28,000 28,000 26,000 2,000 Consultation Appointment/Calls 33,000 3,000 600 2,400 Accounting/office Direct labor hours 30,000 5,000 2,000 3,000 Boarding and grooming 100% pets 40,000 $265,000