Homework SourseQuestion 2 McAndrews Snow Removal is a small familyowned sno
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?
| 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 |
Solution
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.
| 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 |
