Question

Sheldon Cooper operates Daddy’s Nursery which provides baby-sitting services for children between 2 to 5 years old. Working mothers leave their children at 8:00 am and pick them up after office hours.

Sheldon converted his house into a nursery home where children are provided with sleeping areas, play pen and study areas, as well as meals, milk, and snacks. Nursery fee is computed by adding a mark up to the total cost of service provided to each child.

At present, Sheldon uses the traditional costing system in computing the cost of service per child, where the total cost is divided by the number of children served.

During the previous month, the nursery served100 children, for which the company incurred P50,000 total cost of service. Sheldon observed, however, that it is not right to just divide the total cost by the number of children because incurrence of some costs may vary depending on some factors. For example, children between 2 to 3 years old need more attention and are provided more services that those above 3 years old.

Considering this, Sheldon, plans to apply ABC system in determining the cost of service per child. He conducted a study of the previous month’s operations, and the following results came out:

Cost Category	Cost	Cost Driver	Cost Driver Quantity
Meals, Snacks, Supplies	P20,000	Number of children	100 children
Caregiving hours	P30,000	Staff hours	1,200 staff

Children Category	Number of children	Staff hours
Babies (2-3 years old)	60	1,000
Kiddies (above 3 years old)	40	200

1. If the traditional costing system were used and nursery fee was computed at 300% of the cost of service per child, Daddy’s Nursery could have charged each child a fee of _________.
2. If the ABC system were used, nursery fee per child should have been _________.

Answer 1

1. Traditional costing system

Nursery fees charges

Cost per child = Total cost incurred / Number of children

Cost per child = P50,000 / 100 Children = P500 per child

Daddy's Nursery charged each child a fee = P500 * 300% = P1,500.00 per child

2. ABC System

Activity rate

Activity	Cost Pool	/	Cost Driver	=	Activity rate
Meals, Snacks, Supplies	P20,000	/	100 children	=	P200 per child
Caregiving hours	P30,000	/	1,200 staff	=	P25 per staff

Allocation of cost

Babies

Activity	Cost Driver	x	Activity rate	=	Cost
Meals, Snacks, Supplies	60 Children	x	P200 per child	=	P12,000
Caregiving hours	1,000 staffs	x	P25 per staff	=	P25,000
Total Cost				=	P37,000

Cost of Babies sitting per child = P37,000 / 60 children = P616.67

Kiddies

Activity	Cost Driver	x	Activity rate	=	Cost
Meals, Snacks, Supplies	40 Children	x	P200 per child	=	P8,000
Caregiving hours	200 staffs	x	P25 per staff	=	P5,000
Total Cost				=	P13,000

Cost of Kiddies sitting per child = P13,000 / 40 children = P325

Nursery Fees Charges

Cost of babies sitter per child = P616.67 * 300% = P1,850.00 per child Cost of Kiddies sitter per child = P325 * 300% = P975.00 per child

All the best...