Question

Question #2:

McAndrew’s Snow Removal is a small, family-owned snow removal business. For its services, a flat fee of $14.75 per hundred square meters is charged. The son (Conor) of the owner of McAndrew’s Snow Removal has recently learned about ABC in her university accounting course @ Dal. He is starting to wonder whether the company is losing money on certain jobs, specifically jobs that require a significant amount of travel time. He decides to do his first co-op job working for the family business, with the main objective of developing an ABC system.

After a lot of hard work, he concludes that 4 Activity Pools are appropriate. The Activity Pools and their activity measures are as follows:

Activity Cost Pool                             Activity Measure                   Activity for the Year

Snow removal	Square meters cleaned (000s)	32,000 hundred square meters
Travel to jobs	Kilometers driven	15,000 km
Job support	Number of jobs	400 jobs
Other (cost of idle capacity, organization sustaining costs, etc)	None	Not applicable

The total Operating Costs for the year are detailed as follows:

Wages	$150,000   (80%, 10%, 0%, 10%)*
Supplies	$40,000    (100%, 0%, 0%, 0%)*
Snow removal equipment depreciation	$20,000   (80%, 0%, 0%, 20%)*
Vehicle expenses	$40,000   (0%, 60%, 0%, 40%)*
Office expenses	$60,000   (0%, 0%, 45%, 55%)*
President compensation	$80,000   (0%, 0%, 40%, 60%)*

* - percentages represent the respective resource consumption for snow removal, travel to jobs, job support and other.

Required #1: Use Exhibit 7-7 from your textbook as a guide in preparing the first stage allocation of costs to the activity cost pools.

Required #2: use Exhibit 7-8 from your textbook as a guide in computing activity rates for the activity cost pools.

Required #3: The Company recently completed jobs for Slick Joe’s Grocery and Quantum Leap Offices. Details are as follows:

	Slick Joe’s Grocery	Quantum Leap Offices
Square meters cleaned (000’s):	35	35
Travel requirements	75km	5km

Prepare a report showing the margins from each of the above jobs. Use Exhibit 7-12 from your Textbook as a guide.

Required #4: Based on the results of your margin reports, what advice would you give to this Company?

Answer 1

First Stage Allocation to cost pools
	Snow Removal	Travel to jobs	Job support	Others	Total
Wages	$ 120,000.00	$ 15,000.00	$             -	$ 15,000.00	$ 150,000.00
Supplies	$   40,000.00	$             -	$             -	$             -	$    40,000.00
Snow removal equipment depreciation	$   16,000.00	$             -	$             -	$   4,000.00	$    20,000.00
Vehicle expenses	$                -	$ 24,000.00	$             -	$ 16,000.00	$    40,000.00
Office expenses	$                -	$             -	$ 27,000.00	$ 33,000.00	$    60,000.00
President compensation	$                -	$             -	$ 32,000.00	$ 48,000.00	$    80,000.00
	$     176,000.00	$    39,000.00	$    59,000.00	$ 116,000.00	$ 390,000.00

Cost Drivers Rate
Activity	Cost Drivers	Total Activity Amount (A)	Level of Activity (B)	Activity Rate (C=A/B)
Snow removal	Squares meters cleaned	$ 176,000.00	32000.00	$               5.50	per square meter Cleaned
Travel to jobs	KM driven	$    39,000.00	15000.00	$               2.60	Per KM driven
job support	no of jobs	$    59,000.00	400.00	$          147.50	per Job
		$ 274,000.00

Calculation of Cost and margin
		Slick Joe’s Grocery		Quantum Leap Offices
	Activity rate	Activity level	Overheads allocated	Activity level	Overheads allocated
Snow removal	$       5.50	35	$   192.50	5	$   192.50
Travel to jobs	$       2.60	75	$   195.00	5	$      13.00
job support	$ 147.50	1	$   147.50	1	$   147.50
Total Cost`			$   535.00		$   353.00
Service Revenue			$   516.25		$   516.25
Net Margin(loss)			$   (18.75)		$   163.25

Company is having loss in doing alick joe grossery job. It is advised to increase price of service.