However, the partners did reach an agreement to undertake a comparison of the current indirect cost allocation and the proposed activity cost focus. The following information was collected.

Hi, i want to ask, this is the question

11.29 Contrasting the use of an activity cost driver with a volume-based cost driver

Better Pet Care Services is located in rural Victoria, and treats farm animals and domestic pets. Providing veterinary care to the farm animals requires travel to the individual farms in the area, while veterinary care to domestic pets is usually conducted in the surgery located in the town. One of the partners, Dr Al Sashon, recently attended a small business management course in Melbourne. He was particularly interested in the discussions on activity-based analysis, and how the technique could better identify the costs of providing different services. His partner, Dr Jack Russell, prefers to keep the accounting records simple, and would prefer to maintain the current system of allocating indirect costs based on professional labour hours.

Total expected

Use of cost driver*

Activity cost

pool

Cost driver

Estimated

cost

use of cost

driver

Farm

animals

Domestic

pets

Medication

Prescriptions

$128 000

8 000

3 600

4 400

Surgery

Operations

130 000

1 600

400

1 200

Travel

Kilometres

56 000

56 000

52 000

4 000

Consultations

Appointments

66 000

6 000

1 200

4 800

Administration

Professional hours

60 000

10 000

4 000

6 000

Kennel services#

80 000

$520 000

*Expressed in units of measure of the driver.

#Kennel services will now be directly traced as records will be kept of pets using this service.

Direct costs are $300 000 for farm animals and $200 000 (prior to inclusion of kennel services) for domestic pets.

b. Calculate the indirect cost allocation for farm animals and domestic pets using existing methods.

I don’t know how to answer for question b?

 

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