a. Characterize the cost accounting system used by AusBooking. Explain specifically which features of the system match the defining characteristics of the cost accounting terms that you use to characterize it.

Hint: Is the system volume-based or activity-based? Does it incorporate features characteristic of actual, normal or standard costing? How would you characterize the method of overhead allocation? Is it direct, step-down or reciprocal? Does it employ single or dual-rate overhead allocation? Etc.

You are not being asked for your opinion regarding whether the system is good or bad.

Explanation is required. [8 Marks]

b. Explain what is meant by the term cost object and how the concept of cost objects relates to the problem of cost classification.

Give two examples of cost objects that are likely to be important to AusBooking and explain how each might affect the classification of costs associated with identifying and contracting with new hotels and events. [7 Marks]

d. For the purposes of budgeting and cost-volume-profit analysis, should AusBooking classify the cost of direct labour as a variable cost, a step-variable cost or as a step- fixed cost? Explain your choice. [3 Marks]

Question Four: (8 + 7 + 2 + 3= 20 Marks) AusBooking International operates an international telephone call centre here in Australia that takes calls from overseas. AusBooking's customers are Australian hotels and event organizers who pay AusBooking to handle their international calls. The Australian hotels and event organizers pay AusBooking a fixed monthly fee for each separate listing plus a standard commission rate of 2.5% of the gross revenue from every confirmed booking. The primary advantage that AusBooking provides to the hotels and event organizers is the capacity to handle calls in at least a dozen languages, in addition to English, at all hours, every day, year-round. Due to this requirement for multiple language fluency, unusual work hours and customer service skills, AusBooking must pay its telephone staff wages ranging from $20 per hour to as much as $40 per hour depending on experience, work shift and language proficiency. In addition, AusBooking must maintain and update its technology and communications equipment as well as employ a large staff to handle human resources, staff training, supervision, sales and account management. Consequently, total overhead costs somewhat exceed the total costs of telephone staff direct labour. Competition from overseas service providers and a shift in customer demand away from telephone booking and towards internet booking are forcing AusBooking to freeze, and even reduce, monthly listing fees. Increasingly customers have been seeking reductions of the standard commission rate. In order to efficiently provide its full range of languages at all hours, and on all days, AusBooking must attract a large number of listings to keep call volume high. The company's value to the hotels and event organizers depends on keeping the telephone staff busy answering calls most of the time. AusBooking has always used a very simple cost accounting system. An average direct labour cost per booking has been computed based on average hourly wage rates and the expected rate of confirmed bookings telephone staff worker per hour. Similarly an average overhead cost per booking has been computed by dividing total budgeted monthly overhead costs by the expected volume of bookings for the month. Using this simple system, AusBooking management has calculated total average cost per confirmed booking. This is the key figure that AusBooking has used to forecast, control operations and to evaluate its responses to market demands. In preparation for the coming year, the accounting staff at AusBooking has compiled the following budget projections: Year-Ahead Budgeted Costs 15.75 agents Average telephone staff per shift Work hours per shift 8 hours Shifts per day 3 shifts Work day per year 365 days Projected annual direct labour hours 137,970 hours Budgeted average hourly rate $27.50 Budgeted annual direct labour cost $3,794,175 Budgeted annual overhead $4,300,000 In addition, the forecast for the coming year includes the following expectations: Year-Ahead Budgeted Sales Average confirmed bookings per hour 4.3 bookings Average gross revenue per booking $475 Total commission revenue $7,045,093 c. If AusBooking classifies direct labour as variable cost and classifies all overhead costs as fixed costs, what is the company's budgeted contribution margin per confirmed booking and in total for the coming year? [2 Marks] Question Four: (8 + 7 + 2 + 3= 20 Marks) AusBooking International operates an international telephone call centre here in Australia that takes calls from overseas. AusBooking's customers are Australian hotels and event organizers who pay AusBooking to handle their international calls. The Australian hotels and event organizers pay AusBooking a fixed monthly fee for each separate listing plus a standard commission rate of 2.5% of the gross revenue from every confirmed booking. The primary advantage that AusBooking provides to the hotels and event organizers is the capacity to handle calls in at least a dozen languages, in addition to English, at all hours, every day, year-round. Due to this requirement for multiple language fluency, unusual work hours and customer service skills, AusBooking must pay its telephone staff wages ranging from $20 per hour to as much as $40 per hour depending on experience, work shift and language proficiency. In addition, AusBooking must maintain and update its technology and communications equipment as well as employ a large staff to handle human resources, staff training, supervision, sales and account management. Consequently, total overhead costs somewhat exceed the total costs of telephone staff direct labour. Competition from overseas service providers and a shift in customer demand away from telephone booking and towards internet booking are forcing AusBooking to freeze, and even reduce, monthly listing fees. Increasingly customers have been seeking reductions of the standard commission rate. In order to efficiently provide its full range of languages at all hours, and on all days, AusBooking must attract a large number of listings to keep call volume high. The company's value to the hotels and event organizers depends on keeping the telephone staff busy answering calls most of the time. AusBooking has always used a very simple cost accounting system. An average direct labour cost per booking has been computed based on average hourly wage rates and the expected rate of confirmed bookings telephone staff worker per hour. Similarly an average overhead cost per booking has been computed by dividing total budgeted monthly overhead costs by the expected volume of bookings for the month. Using this simple system, AusBooking management has calculated total average cost per confirmed booking. This is the key figure that AusBooking has used to forecast, control operations and to evaluate its responses to market demands. In preparation for the coming year, the accounting staff at AusBooking has compiled the following budget projections: Year-Ahead Budgeted Costs 15.75 agents Average telephone staff per shift Work hours per shift 8 hours Shifts per day 3 shifts Work day per year 365 days Projected annual direct labour hours 137,970 hours Budgeted average hourly rate $27.50 Budgeted annual direct labour cost $3,794,175 Budgeted annual overhead $4,300,000 In addition, the forecast for the coming year includes the following expectations: Year-Ahead Budgeted Sales Average confirmed bookings per hour 4.3 bookings Average gross revenue per booking $475 Total commission revenue $7,045,093 c. If AusBooking classifies direct labour as variable cost and classifies all overhead costs as fixed costs, what is the company's budgeted contribution margin per confirmed booking and in total for the coming year? [2 Marks]