Applying Activity Based Costing: A Report on Animal Shelter Services

This report presents a cost sheet using Activity Based Costing (ABC) to analyze cost incidents within Baulkham Hills Shire Council, focusing on its animal shelter services. It identifies cost pools related to housing, veterinary services, and training, and utilizes cost drivers such as square footage and number of visits to allocate costs. The analysis concludes that ABC is a rational method for distributing overheads, though it acknowledges limitations such as the subjective choice of cost drivers. The report references academic sources to support its methodology and findings, highlighting the advantages and potential complexities of implementing ABC in service-oriented organizations. Desklib provides students with access to similar solved assignments and study tools.

MANAGEMENT ACCOUNTING
ASSESSMENT 2

EXECUTIVE SUMMARY
 The report is aimed to present cost sheet applying Activity Based Costing method, in
order to articulate the cost incidents in an organization.
 With this regard Baulkham Hills Shire Council which is engaged in animal shelter related services
has been taken into consideration.
 In the report the method is applied on the given set of data, and also articulated how the
cost activities, cost pools and cost drivers were decided.

ANALYSIS
Cost amount Cost driver facility-A facility-B facility-C
Direct costs - - - -
Veterinarians and technicians 300000 - - 300000 -
Animal trainers 40000 - - - 40000
Food and supplies 150000 - - 150000 -
Overheads
Director and staff salaries 120000 Number of visits 45000 25000 50000
Animal shelter employees' salaries 200000 Square feet 100000 40000 60000
Animal trainers 40000 Number of visits 15000 8333 16667
Food and supplies 100000 Number of visits 37500 20833 41667
Building related costs 400000 Square feet 200000 80000 120000

IDENTIFICATION OF COST POOLS
 The cost pools were identified using rational method.
 The entity is getting operated in animal sheltering services.
 Cost pool refers to the all costs which are associated with a particular task.
 Here three cost pools are identified which are having their separate set of task and also generating
costs.
 The pools are- Housing services to animals, veterinary services, training.

Continued…
 Cost drivers refer to such factors which are behind certain cost.
 This can also be defined as the direct cause of a cost.
 There have been different cost drivers used for different costs.
 The very first cost driver was “Square foot”. The geographical element has been taken into
consideration.
 One another cost driver has been “Number of visits”. Where the fact was given prominence that
how the visits are driving cost to the cost pools.

Continued…
 Cost allocation rate is also known as cost driver rate, which is used to
allocate the cost to certain cost pool, it is prominent function for distributing
cost to determine cost allocation rate.
 Director and staff salary was distributed using number of visits. For all three
cost pools the number of visits was calculated. For the housing facility it was
9000 as given, for veterinary facility it has been 10000 and for training it was
5000 (250×20).

FINDINGS
 Form the report above it can be concluded that the ABC is one of the most
rational method to distribute the overheads or indirect cost of an entity.
 In this method some cost drivers are figured out which are behind cost incident
with respect to an organization.
 The report evaluated this aspect to the fullest extent with the help of some
calculations for Baulkham Hills Shire Council, which is engaged in animal
shelter services.

ACTION ITEMS/ LIMITATIONS
 From the analysis above it can be summarized that despite having a range of
advantages there are some negative aspects too of this method.
 The method is still based on some assumptions. It is not clearly
stated that how to choose exact cost drivers and there may be number of such
drivers behind a single cost so it becomes complicated to choose the best and
most suitable one.

REFERENCES
 Potasheva, O., 2021. Automation problems of ABC costing in Russia. In Current Achievements,
Challenges and Digital Chances of Knowledge Based Economy (pp. 331-339). Springer, Cham.
 Quesado, P. and Silva, R., 2021. Activity-based costing (ABC) and its implication for open
innovation. Journal of Open Innovation: Technology, Market, and Complexity. 7(1). p.41.
 Camacho, K., Saavedra, J., Salvatierra, Y. and Quispe, G., 2020, October. ABC Costing Model for
a MSE of the Metalworking Sector. In Brazilian Technology Symposium (pp. 293-299). Springer,
Cham.