Question
nosha Winter Services is a small, family-owned snow-removal business. For its services, the company has always charged a flat fee per hundred square metres of
nosha Winter Services is a small, family-owned snow-removal business. For its services, the company has always charged a flat fee per hundred square metres of snow removal. The current fee is $10.00 per hundred square metres. However, there is some question about whether the company is actually making any money on jobs for some customersparticularly those located on more remote properties that require considerable travel time. The owner's daughter, home from school for the summer, has suggested investigating this question using ABC. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:
| Activity Cost Pool | Activity Measure | Activity for the Year | |
| Snow removal | Square metres cleaned (00s) | 53,000 | hundred square metres |
| Travel to jobs | Kilometres driven | 29,660 | kilometres |
| Job support | Number of jobs | 250 | jobs |
| Other (costs of idle capacity and organization-sustaining costs) | None | NA | |
The total cost of operating the company for the year is $517,500, which includes the following costs:
| Wages | $ | 201,000 | |
| Supplies | 48,500 | ||
| Snow removal equipment depreciation | 28,500 | ||
| Vehicle expenses | 48,500 | ||
| Office expenses | 77,000 | ||
| President's compensation | 114,000 | ||
| Total cost | $ | 517,500 | |
Resource consumption is distributed across the activities as follows:
| Distribution of Resource Consumption across Activity Cost Pools | |||||||||||||||
| Snow Removal | Travel to Jobs | Job Support | Other | Total | |||||||||||
| Wages | 70 | % | 20 | % | 0 | % | 10 | % | 100 | % | |||||
| Supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % | |||||
| Snow removal equipment depreciation | 80 | % | 0 | % | 0 | % | 20 | % | 100 | % | |||||
| Vehicle expenses | 0 | % | 70 | % | 0 | % | 30 | % | 100 | % | |||||
| Office expenses | 0 | % | 0 | % | 40 | % | 60 | % | 100 | % | |||||
| President's compensation | 0 | % | 0 | % | 45 | % | 55 | % | 100 | % | |||||
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1.Prepare the first-stage allocation of costs to the activity cost pools.(Do not leave any empty spaces; input a 0 wherever it is required.)
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2.Compute the activity rates for the activity cost pools.(Round your answers to 2 decimal places.)
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3.The company recently completed a 5,200-square-metre snow removal job at Hometown Hardwarea 92-kilometre round-trip journey from Kenosha's offices. Compute the cost of this job using the ABC system.(Round your answers to 2 decimal places.)
| 3.The company recently completed a 5,200-square-metre snow removal job at Hometown Hardwarea 92-kilometre round-trip journey from Kenosha's offices. Compute the cost of this job using the ABC system.(Round your answers to 2 decimal places.) |
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4.The revenue from the Hometown Hardware job was $520.00 (5,200 square metres at $10.00 per hundred square metres). Prepare a report showing the margin from this job.(Round your answers to 2 decimal places.
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Intermediate Microeconomics
Authors: Hal R. Varian
9th edition
978-0393123975, 393123979, 393123960, 978-0393919677, 393919676, 978-0393123968
