ABC System For Baulkham Hills Shire Council Animal Shelter

Cost Allocation using a Costing System

total indirect cost = 20000+60000+40000= $300000
Under the costing system, all indirect cost are allocated based on one cost attribute. In the given scenario it is square foot occupied by each division. Using this we have:
 – animal shelter: indirect cost per unit= 150000/5000=$30, direct cost per unit = 150000/5000 = $30.
 -veterinarian clinic: indirect cost per unit = 60000/2000= $30, direct cost per unit =225000/2000= $113
 -training: indirect cost per unit= 90000/3000.

we have then divided the total cost by the unit of each division:
 – animal shelter= 150000/4500= $67 per animal housed
 – clinic= 285000/5000= $57 per animal nursed
 – training= 9000/125= $720 per meeting

Activity Based Costing
Cost Pool Selection
We have been provided with data of Baulkham Hills Shire Council’s animal shelter. In order to identify the cost pools for the shelter, we have identified the characteristics which can help us identify the costs consumed separately for each of the divisions of the shelter-
 – Building related cost- these costs have been selected as a cost pool as the divisions individually take up floor space (Datar,2016).
 – Salaries- these costs have been selected as a cost pool as the services used for each division can be identified.
 – Food and supplies- the consumption of food and supplies can be identified according to the animals supported by each division (Datar,2016).
Hence these costs have been identified as separate cost pools.

Cost Driver Selection
The cost drivers of each cost pool is required to be identified based on the attribute that can easily be traced back to the division (Horngren, 2012).
 – Using are occupied for building related cost- since the use of building is based on area occupied, we have used the area occupied as a cost driver to allocate the building related expense.
 – Using the services provided by the employees in order to allocate salaries-the cost of services provided by the employees have been allocated based on functions, for example, salaries of the training staff will be allocated to the training centre.
 – Using the amount of other cost based on nature in order to allocate other costs- the costs incurred on food and supplies are allocated based on the nature of expense. For example, the food expenses are to be incurred for shelter and the supplies are to be used for veterinarian clinic.

Findings:
The following are to be considered for the above calculations:
 – Director and staff salaries have been totally charged to director and training division, as this facility houses the director, staff and other trainers
 – the animal shelter employees salaries have been totally charged to animal shelter division, as this facility uses the services provided by them
 – the salaries for veterinarians and the technicians have been totally charged to veterinarian clinic, as this facility uses the services provided by them
 – the 50% of the expenses have been charged to the director and training division and the reaming has been charged to animal shelters division, as the services of the technicians are used to train the sheltered animals.
 – $75000 of food and supplies has been charged to the clinic as mentioned, and the remaining expenses for food and supplies for $50000 has been charged to animal shelter, as the food expenses are to incurred on the animals housed
 – the building related cost have been charged based on area occupied by each division.
 In order to identify the cost per activity, we have allocated the costs of each division based on the activity(White, 2009):
 – Cost of animal shelter has been determined for each animal sheltered. The shelter housed 4500 animals for the year; cost of sheltering one animal for an entire year is $60.
 – Costs of the director and training division have been determined for each family attending a class. The division had offered about 125 meetings with 10 families attending each meeting; this means total 1250 families attended the meeting. Based on this data we have $112 for each family attending the classes.
 – Cost of the veterinarian clinic is based on the number of animal visits taking place. Cost incurred on each animal visit is $53 per visit for a year.

Limitations:
Though activity based costing provides better costing data, it has a few limitations:
 – collection of data required to execute activity based costing is very large, this requires too much manpower and resources
 – execution of activity based costing requires a trained professional, which makes it burdensome for the company
 – too much information may sometimes lead to confusion and wrong analysis
 – it becomes difficult to identify cost drivers for some activities, which make it difficult to allocate the costs 
Therefore, we see that there are some limitations of activity based costing which can sometimes harm the cost allocation process.

Conclusion

Therefore, the cost data collected will help the management understand the cost incurred on every activity taking place in each division. This will help them manage costs.
Using the results of the activity based costing, will help the management understand which of the divisions has been consuming more costs. Having an insight into the cost consumption of various functions, will help the management in better allocation of resources. The management can set budgets and appropriate resources, which will help in better functioning of the animal shelter.

References

Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Datar, S. (2015). Cost accounting. Boston: Pearson.
Datar, S. (2016). Horngren’s Cost Accounting: A Managerial Emphasis. Hoboken:   Wiley.
Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice  Hall.
White, T. S. (2009). The 60 minute ABC book. Bedford: Consortium for Advanced   Manufacturing International.