ACCT2006 Management Accounting Question B.2 (15 Marks) b. 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 Melboune. 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. a. Discuss the main benefits, costs and limitations of ABC systems However, the partners did reach an agreement to undertake a comparison of the current indirect cost allocation and the proposed activity cost focus. following information was collected Total expectedUse of cost use of cost FarmDomestic Activity cost Cost driver 4 400 $128000 8000 3 600 Surgery 400 1200 130000 1 600 Travel 4000 56 000 56 000 66 000 6000 1200 4800 60000 10000 6000 4000 Kennel services $520000 Expressed in units of measure of the driver Kennel services will now be directly traced as records wil be kept of pets using this practice Direct costs are $300 000 for farm animals and $200 000 (prior to inclusion of kennel services) for domestic pets. Required: i. Calculate the indirect cost allocation for farm animals and domestic pets using existing methods (traditional methods). ii. Determine the activity cost rates for each activity. ii Assign the activity cost to the farm animals and the domestic pets using the activity rates calculated in ii above. Calculate the full (total) cost for both farm animals and domestic pets under both the traditional approach and the activity approach. (Hint: include kennel services as a direct cost under the activity approach.) iv. (5+10-15 Marks)