Activity Based Costing Analysis for Baulkham Hills Shire Council

This report provides an Activity Based Costing (ABC) analysis for the Baulkham Hills Shire Council, focusing on the animal shelter, director and training, and veterinarian clinic facilities. It identifies cost pools, assigns costs, and determines cost drivers to allocate overheads and expenditures effectively. The analysis includes calculations of total costs assigned to each facility, the determination of appropriate cost drivers, and the allocation rates for each cost pool. The report highlights the benefits of ABC over conventional costing, emphasizing its ability to allocate costs on a rational basis and improve cost management. The findings show that ABC provides a more accurate method to ascertain the cost of different services and products. The report also includes references to relevant academic sources supporting the analysis.

MANAGEMENT
ACCOUNTING
Activity Based Costing and its benefits

EXECUTIVE SUMMARY
The presentation has been made for the management of Baulkham
Hills Shire Council to provide them with important attributes of
Activity Based Costing (ABC). The conventional costing system
does not take into consideration the cost pools and associated
cost drivers while allocating the overheads and expenditures in
different departments. ABC on the other hand determines
appropriate cost pools, assign expenditures for these costs pools
and finally on the basis of appropriate cost drivers these costs are
assigned to different departments to calculate the cost of products
or services.
On the basis of the information provided about the animal shelter
that the council operates appropriate cost pools and cost drivers
have been identified to ascertain the costs of three different
facilities of the shelter.

IDENTIFICATION OF COSTS
POOLS
• The three facilities have been identified as the primary costs pools for the
Baulkham Hills Shire Council.
• The three facilities and primary costs pools are:
Animal Shelter: As finding homes for stray and unwanted animals is one of
the primary activities of the shelter.
Director and training: As the animal shelter also provides pet training
services.
Veterinarian clinic: The shelter provides health care and nurturing services to
the animals (Kaplan, Witkowski, Abbott, Guzman, Higgins, Meara &
Wertheimer 2014).

ASSIGNING COSTS
• Total cost assigned to animal shelter is $250,000 (Refer to calculation).
• Animal shelter employees salaries of $100000 as it is exclusively for
animal sheltering.
• Food and supplies expenditures totaling to $125,000 out of which
$75,000 is for veterinarian clinic thus, the balance (125000 -75000)
=$50000 is for animal shelter.
• Building related costs have been assigned on the basis of area allotted for
animal sheltering. Thus, the total building related costs of $200,000 has
been apportioned as following:
(200000 x 5000/10000) = $100,000

ASSIGNING COSTS
• Total cost assigned to director and training is $160,000 (Refer to
calculation).
• Director and staff salaries of $60,000 as it is exclusively for director and
training purpose.
• Animal trainer expenses is again exclusively for director and training
purposes of $40,000.
• Building related costs have been assigned on the basis of area allotted for
director and training. Thus, the total building related costs of $200,000
has been apportioned as following:
(200000 x 3000/10000) = $60,000

ASSIGNING COSTS
• Total cost assigned to Veterinarian clinic is $265,000 (Refer to
calculation).
• Veterinarian and technician expenses $150,000 as it is exclusively for this
purpose.
• $75000 for food supplies specifically for veterinarian purposes.
• Building related costs have been assigned on the basis of area allotted for
Veterinarian clinic. Thus, the total building related costs of $200,000 has
been apportioned as following:
(200000 x 2000/10000) = $40,000

ANALYSIS
Animal shelter Director and traning Veterinarian clinic
-
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
Cost pools

ANALYSIS
• As can be seen in the earlier slide that the costs apportioned between
three main costs pools are significantly different under ABC compared to
the cost segregation provided under different heads as per conventional
costing system.
• The chart is provided in the next slide shows the cost under conventional
costing would help us to spot the difference between the ABC and
conventional costing (Dale & Plunkett 2017).

CONVENTIONAL COSTING
Director and staff
salaries
Animal shelter
employees' salaries
Veterenarians and
technicians
Animal trainers Food and supplies Building related costs
-
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
160,000.00
180,000.00
200,000.00
Conventional costing

FINDINGS
• The ABC is an effective method to ascertain cost of different products and
services better.
• The costs can be allocated to different cost centers on some rational
basis instead of a predetermined allocation rate that has no basis as in
the conventional costing method.
• Costs can be managed better as cost pools and cost drivers are correctly
identified.
• The only limitation is that the cost pools and cost drivers have to be
identified correctly in order to apportion costs correctly (Ríos-Manríquez,
Colomina & Pastor, 2014).

DETERMINATION OF COST
DRIVERS.
Cost pools Costs Cost drivers Basis of determination
Animal
shelter
250,000.00 Number of
animals housed
The number of animals housed during the year totalled to
calculate the animal sheltering cost of per animal
Director and
training
160,000.00 Number of
training classes
Cost of per training class
Veterinarian
clinic
265,000.00 Number of
animal visits
Cost per animal visit

COST DRIVERS
• For activity based costing the cost drivers are chosen taken into
consideration the different activities that accumulate total costs.
• In this case the cost drivers are Number of animals housed for animal
shelter expenses.
• For director and training expenses number of training classes has to be
used as cost driver.
• The number of animal visits shall be used as cost driver for Veterinarian
clinic expenses (Langfield-Smith, Smith, Andon, Hilton & Thorne 2017).