Question

Question 01: STC Inc. is a small family-owned snow-removal business. For its services, the company has always charged a flat fee per hundred square meters of snow removal. The current fee is $21 per hundred square meters. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on more remote properties that require considerable travel time. The owner’s son, home from school for the summer, has suggested investigating this question using ABC. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below: The total cost for operating the company for the year is $624,000 which includes the following costs: Wages Supplies Snow removal equipment depreciation Vehicle expenses Office expenses President’s compensation Total cost $240,000 $64,000 $32,000 $64,000 $96,000 $128,000 $624,000 Resource composition is distributed across the activities as follows: Distribution of resource consumption across activity cost pools Snow removal Wages 70% Supplies 70% Snow removal equip. dep. 70% Vehicle expenses 0% Office Expenses 0% President’s compensation 0% Travel to jobs 10% 0% 0% 90% 10% 0% Job support Other Total 0% 20% 100% 0% 30% 100% 0% 30% 100% 0% 10% 100% 50% 40% 100% 30% 70% 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on. a. Prepare the first-stage allocation of costs to the activity cost pools. [4 Marks] b. Compute the activity rates for the activity cost pools. [3 Marks] c. The company recently completed a 3,500-square-metre snow removal job at Downton Hardware—a 60-kilometer round-trip journey from STC’s offices. Compute the cost of this job using the ABC system. [2 Marks] d. The revenue from the Downton Hardware job was $735 (3,500 square meters at $21 per hundred square meters). Prepare a report showing the margin from this job. [3 Marks]

Answer 1

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