Question

Baulkham Hills Shire Council owns and operates an animal shelter that provides the following services:
1. housing and finding homes for stray and unwanted animals,
2. providing health care and nurturing services for the animals, and
3. pet training services.
The operations are undertaken in three different facilities each dedicated for its own purpose as below:
a) One is dedicated to housing animals waiting to be adopted.
b) The second facility houses veterinarian services.
c) The third, 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 $120,000
Animal shelter employees’ salaries 200,000
Veterinarians and technicians 300,000
Animal trainers 80,000

Food and supplies 250,000
Building-related costs 400,000

On average, 150 animals per day are housed at the facility, or about 54,750 (150 x 365) animal days in total. The number of animals housed during the year totalled 9000. In addition, the trainers offer about 250 classes during the year. On average, 20 families attend each class. Last year the veterinarian clinic experienced 10000 animal visits.
You have been newly appointed as one of the Director’s staff members and have been asked 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. You gather the following information:
Square footage for each facility:
Animal shelter ------------- 10000 square feet
Director and training ----- 6000 square feet
Veterinarian clinic --------- 4000 square feet
Percentage of trainer time used in classes - 50%
Supplies used for veterinarian services - $150,000

REQUIRED:
Prepare an Executive Report to advise the Director on the results of an analysis of the costing system and the introduction of an ABC system. Your report should include the following:
1. Show how you identified cost pools and assigned costs to them, considering the three cost objects of interest.
2. How did you determine a cost driver for each cost pool and explain your choice.
3. 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

1.

The three cost objects I would recognise is that
Salary	Pet Care	Other Supporting Services
Cost Pool	Amount	Cost Pool	Amount	Cost Pool	Amount
Veterinarians and technicians	300000	Food & Supplies	150000	Animal Trainers(Balance)	40000
Animal Trainers	40000	Veterinarian Supplies	100000	Building Cost-Veterinarian Clinic	80000
Director & Staff Salary	120000			Building Cost-Director & Training	120000
Shelter home salary	200000			Building Cost-Animal Shelter	200000

2.

Cost Pool	Cost Driver
Veterinarians and technicians	No of Animal Visit in Veterinarian Clinic
Animal Trainers	No of Animal Visit in Training
Director & Staff Salary	Average total no. of animals housed in the year
Shelter home salary	Animal Housed during the year
Food & Supplies	Average total no. of animals housed in the year
Animal Trainers(Balance)	Average total no. of animals housed in the year
Building Cost-Veterinarian Clinic	No of Animal Visit in Veterinarian Clinic
Building Cost-Director & Training	Average total no. of animals housed in the year
Building Cost-Animal Shelter	Animal Housed during the year
Veterinarian Supplies	No of Animal Visit in Veterinarian Clinic

3.

Cost Pool	Cost	Cost Driver		Cost Driver Figures	Cost/Cost Driver	Meaning
Veterinarians and technicians	300000	No of Animal Visit in Veterinarian Clinic	10000	30	For every pet visiting in Veterinarian Clinic Charge $ 30
Animal Trainers	40000	No of Animal Visit in Training	5000	8	For every animal attend for training charge $8
Director & Staff Salary	120000	Average total no. of animals housed in the year	54750	2.191780822	Either bear or charge $ 2.19 for houses animals
Shelter home salary	200000	Animal Housed during the year	9000	22.22222222	Bear $ 22.22 for housed animal
Food & Supplies	150000	Average total no. of animals housed in the year	54750	2.739726027	Bear $ 2.74 for housed animal
Animal Trainers(Balance)	40000	Average total no. of animals housed in the year	54750	0.730593607	Either bear or charge $ 0.73 for houses animals
Building Cost-Veterinarian Clinic	80000	No of Animal Visit in Veterinarian Clinic	10000	8	For every pet visiting in Veterinarian Clinic Charge $8
Building Cost-Director & Training	120000	Average total no. of animals housed in the year	54750	2.191780822	Either bear or charge $ 2.19 for houses animals
Building Cost-Animal Shelter	200000	Animal Housed during the year	9000	22.22222222	Bear $ 22.22 for housed animal
Veterinarian Supplies	100000	No of Animal Visit in Veterinarian Clinic	10000	10	For every pet visiting in Veterinarian Clinic Charge $ 10