Question

Mosl financial advisory providing financial service to the customers.it has 4 advisor who each expect to work 2000 hour per year chargable.and each salary is 90,000 per year.now company employes 2 more Admin staff whose all together(combine salary )is 110,000 per year.other estimated cost for the year is like,(non- salary costs) rent - 30,000,Advertisement - 2,000,client palce travelling cost 10,000,cost of accomodation when vist client 8,000,mobile cost 7,000.

Mosl has allocating costs to each client the chargeable hours spent on each client and charging clent using a single cost rate for all costs based on chargeable hours. same rate using when preparing quatation for the new client.

mosl reviewed their and conclude that they have three diffrent kind of client group.

	Town client	stateclient	countryClient
hourly charge to the client	70	500	200
distance to client(km)	40	80	110
no.of visit to client	5	9	2
ech group has no.of client	7	5	3

calculate:

single rate cost used to allocate cost.what will be allocated cost for each 3 client group under the current method?

calculate cost allocated to each client group using the activity based system allocation cost.

Answer 1

In single rate cost used to allocate cost The Total Cost pool will be allocated Client per Chargeable hours spend irrespective of Fixed or variable costs(individual Cost pools).

Total Cost

	Cost Pool
Salary of Advisors (90,000*4)	360,000
Admin Staff	110,000
Rent	30,000
Advertisment	2,000
Travel Cost	10,000
Accomodation at client site	8,000
Mobile Cost	7,000
Total Cost	527,000

Single rate (Budgeted) cost allocation rate =Totsl cost pool /budgeted hours

........................................................................=527,000 /(2000Hours*4advisor) =527,000/8000 = 65.875 Per Hour.

Rate of 263.5 per hour is indifferent for clients under current system .(As mentioned in question "single cost rate for all costs based on chargeable hours")

activity based system allocation cost

Under ABC costing Costs are identified and allocated based on individual Cost pools(reason for incurring Cost) Is measured on based on Cost Driver(Units).

So under ABC basis for each Cost pool is to be identified.

Cost Pool	Cost Driver (Basis)
Advising	Per Hour (Hourly rate given in Question)
Travel	Kms Travelled
Accomodation	No:of visits
Administration Staff	No: of clients (Logically something)
Rent,Mobile,Advertising	no:of clients

ABC Allocation( other than Advisory Hourly Rate)

Total Cost Allocated To:	Town Client	State Client	Country Client	Per Cost driver(Cost Pool/Total Cost driver)
Travel	4.385*400W1=1754	4.385*1440W1=6,316	4.385*440w1=1930	10,000/2280w1=4.385Per Km
Accomodation	500*5=2,500	500*9=4,500	500*2=1,000	8000/(5+9+2visits) =500 per visit
Administration	7333.33*7=51,333	7333.33*5=36,667	7333.33*3=22,000	110,000/(7+5+3)=7333.33Per Client
Rent,Mobile,Adv	2600* 7=18,200	2600*5=13,000	2600*3=7,800	Totals-39,000/(7+5+3)=2600 per Client
Total Cost to Client group	73,787	60,483	32,730	Total other than 360k advisory=167,000

W1) Travelled Kms is calculated

Consider Going and returning*2 to client site. Multiply by no:of visits

So, Country-40 *2 * 5 = 400

State 80* 2 * 9 =1440

Country 110 * 2 * 2 =440

Total .............. 2,280