Activity Based Costing for Animal Shelter Management

This report presentation discusses the application of Activity Based Costing on the cost data of an animal shelter. The calculations done in the report presentation will help the user to understand the nature of cost and activities. The following discussion includes analysis of cost data of Baulkham Hills Shire Council. The results of the analysis are expected to help the management have a better understanding of cost incurred on various functions.

PRACTICAL AND WRITTEN GROUP ASSESSMENT COVER SHEET
FOUNDATIONS OF MANAGEMENT ACCOUNTING- ACCT20076
Campus: CQU, Sydney
Workshop date: 13 September
S.NO Student ID Family name First name
1 12084727 Gurung Arijit
2 12066556 Rana Manisha
3 12069330 Tamang Meera
4 12062389 Khatri Chhabilal
5 12064134 Shrestha Susita
Submitted to: Richard Edward Goldman

Executive Summary
The following report presentation contains a discussion on activity based costing. The method of
ABC has been applied on the cost data of animal shelter in order to help the management of the
shelter take necessary decisions.
The calculations done in the report presentation will help the user to understand the nature of cost
and activities. Application of Activity based costing gives the users a detailed insight into the cost
data, which helps in better decision making.
The following discussion includes analysis of cost data of Baulkham Hills Shire Council. The
results of the analysis are expected to help the management have a better understanding of cost
incurred on various functions.
The costing system uses only one cost driver, which allocates the cost unevenly among the
divisions (Boyd,2013).
Activity based costing is another cost allocation method which allocates the joint overhead costs
based on actual usage of the activities.
The animal shelter has three major divisions.
- Animal Shelter
- Director and Training
- Veterinarian Clinic
We have been provided with cost incurred by the shelter. Using the cost data and other information
collected, we will calculate the costs which are attributable to the divisions individually.

Calculation of cost allocation under the 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
Particulars
Animal Shelter Veterinarian Clinic Training
Total Cost4500 5000 125
Total Per Sq Ft Total Per Sq Ft Total Per Sq Ft
Direct Labour 1,00,000 1,50,000 - 2,50,000
Direct Material 50,000 75,000 - 1,25,000
Total Direct 1,50,000 30 2,25,000 113 - - 3,75,000
Indirect cost allocated 1,50,000 30 60,000 30 90,000 30 2,10,000
Total cost 3,00,000 67 2,85,000 57 90,000 720

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.

Analysis
Using this data on cost pool and cost drivers we have collected the following data:
Particulars unit
Square foot for each facility
- Animal Shelter 5000 sq ft
- Director and training 3000 sq ft
- Veterinenian Clinic 2000 sq ft
Percentage of trainer time used in class 50%
Supplies use veterinerian clinic $75000
Total number of animals housed 4500
Total animal visits 5000
Total number of families attending families 1250
Other details
Particulars Amount
Director and staff salaries 60,000
Animal shelter employees’ salaries 1,00,000
Veterinarians and technicians 1,50,000
Animal trainers 40,000
Food and supplies 1,25,000
Building-related costs 2,00,000
Estimated Annual Cost

The following table shows allocation of cost based on the cost drivers:
Note: In the above calculations we have assumed that the remaining food
supplies are wholly related to animal shelter
Particulars Animal Shelter
Director and
Training
Veterinarian
Clinic
Director and staff salaries - 60,000 -
Animal shelter employees’
salaries 1,00,000 - -
Veterinarians and
technicians - - 1,50,000
Animal trainers 20,000 20,000 -
Food and supplies 50,000 - 75,000
Building-related costs 1,00,000 60,000 40,000
Total Cost
(100000+20000+50000+1
00000)
(60000+20000+60
000)
(150000+75000+4
0000)
2,70,000 1,40,000 2,65,000
Basis of cost allocation
Number of animals
housed
Number of
families attending
the meetings
Number of animal
visits
Unit 4,500 1,250 5,000
Cost per unit 60
(270000/4500)
112
(140000/1250)
53
(265000/5000)

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.

Bibliography
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.