C18-34. Designing an ABC System for a Country Club

The Reserve Club is a traditional private golf and country club that has three different categories

of memberships: golf, tennis & swimming, and social. Golf members have access to all amenities

and programs in the club, Tennis & Swimming members have access to all amenities and programs

except use of the golf course, and Social members have access to only the social activities of the

club, excluding golf, tennis, and swimming. All members have clubhouse privileges, including

use of the bar and restaurant, which is operated by an outside contractor. During the past year, the

average membership in each category, along with the number of club visits during the year, was:

Members Visits

Golf.......................................................... 500 15,000

Tennis & Swimming ............................................. 110 2,200

Social ........................................................ 250 5,000

Some members of the club have been complaining that heavy users of the club are not bearing their

share of the costs through their membership fees. Dess Rosmond, General Manager of the Reserve

Club, agrees that monthly fees paid by the various member groups should be based on the annual

average amount of cost-related activities provided by the club for the three groups, and he intends

to set fees on that basis for the coming year. The annual direct costs of operating the golf course,

tennis courts, and swimming pool have been calculated by the clubs controller as follows:

Golf course ............................................................ $1,250,000

Swimming pool ......................................................... 75,000

Tennis courts .......................................................... 45,000

The operation of the bar and restaurant and all related costs, including depreciation on the bar and

restaurant facilities, are excluded from this analysis. In addition to the above costs, the club incurs

general overhead costs in the following amounts for the most recent (and typical) year:

General Ledger Overhead Accounts Amounts

Indirect labor for the club management staff (the general manager,

assistant general manager, membership manager, and club controller) . . . . . . . . . . . . .

$375,000

Utilities (other than those directly related to golf, swimming, and tennis). . . . . . . . . . . . . . . 34,000

Website maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500

Computers and information systems maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Clubhouse maintenance & depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Liability insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

Security contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

$482,500

Dess believes that the best way to assign most of the overhead costs to the three membership cat-

egories is with an activity-based system that recognizes four key activities that occur regularly in

the club:

Recruiting and providing orientation for new members

Maintaining the membership roster and communicating with members

Planning, scheduling, and managing club events

Maintaining the financial records and reporting for the club

REQUIRED

a. Identify and explain which overhead costs can reasonably be assigned to one or more of the

four key activities, and suggest a basis for making the assignment.

b. Identify a cost driver for each activity cost pool that would seem to be suitable for assigning

the activity cost pool to the three membership categories.

c. Suggest a method for assigning any overhead costs to the three membership categories that

cannot reasonably be assigned to activity pools.

d. Comment on the suitability of ABC to this cost assignment situation.