Question

Shearwater Council owns and operates an animal shelter that performs three services: housing and finding homes for stray and unwanted animals, providing health care and neutering services for the animals, and pet training services. One facility is dedicated to housing animals waiting to be adopted. A second facility houses veterinarian services. A third facility houses the director, his staff, and several dog trainers. This facility also has several large meeting rooms that are frequently used for classes given by the animal trainers. The trainers work with all of the animals to ensure that they are relatively easy to manage. They also provide dog obedience classes for adopting families.

Estimated annual costs for the animal shelter and its services are as follows:

Director and staff salaries $ 60 000

Animal shelter employees’ salaries 100 000

Veterinarians and technicians 150 000

Animal trainers 40 000

Food and supplies 125 000

Building-related costs 200 000

On average, 75 animals per day are housed at the facility or about 27 375 (75 × 365) animal days in total. In addition, the trainers offer about 125 classes during about 30 weeks throughout the year. On average, 10 families attend each class. Last year the veterinarian clinic experienced 5000 animal visits.

One of the director’s staff members just graduated from an accounting program and would like to set up an ABC system for the shelter so that the director can better understand the cost for each of the shelter’s services. He gathers the following information:

Square footage for each facility:

Animal shelter 5000 square feet

Director and training 3000 square feet

Veterinarian clinic 2000 square feet

Percentage of trainer time used in classes 50%

Supplies used for veterinarian services $75 000

REQUIRED:

A. Identify cost pools and assign costs to them, considering the three cost objects of interest.

B. Determine a cost driver for each cost pool and explain your choice.

C. Calculate the allocation rates for each cost pool and cost driver. Interpret the allocation rate for each cost pool (i.e., explain what it means).

Answer 1