Baulkham Hills Shire Council Cost Allocation: ACCT20076 Analysis

This assignment presents a practical application of activity-based costing (ABC) to allocate costs within the Baulkham Hills Shire Council, specifically across three service departments: animal shelter, veterinary clinic, and director/training. The solution begins with an executive summary outlining the problem of cost allocation and the rationale for using ABC over traditional costing methods, emphasizing its accuracy in allocating indirect costs. The analysis identifies cost pools and assigns costs based on direct attribution, square footage, and activity-based drivers such as trainer time and supplies used. The document details the calculation of allocation rates for each cost pool and cost driver, demonstrating how the costs are distributed across the departments. The findings highlight the benefits of ABC in determining service prices and overall costs, while acknowledging limitations in the allocation of certain expenses due to data constraints. The assignment concludes with a discussion of the limitations and references supporting the methodology. This assignment is a solution to ACCT20076 and provides a comprehensive example of cost accounting principles.

ACCT20076:
Practical and
Written
Assessment
Foundation of management accounting

Executive summary
• Problem statement: Issue is allocation of cost by
considering suitable cost drivers.
• Background: The present study is based on comparative
evaluation of traditional and activity based costing and to
provide suitable allocation rates for each cost pool and
cost driver.
• Summary: For present study Activity based costing
scheme is used as it is more specific and correct than
traditional costing system. The main reason behind this is
they give a more accurate breakdown of indirect
expenses.

Case facts of Baulkham Hills
Shire Council
• Allocation of costs among three services departments i.e.
housing and finding homes for stray and unwanted
animals, providing health care and nurturing services for
the animals, and pet training services. Followings costs
are to be allocated by using different drivers:

Activity base costing
• More accurate in comparison to traditional costing
• This method allocates indirect costs to different departments and
further it allocates the products cost which is dependent on the
products’ usage of the performance
• The technique of Activity-based costing must be utilized when
accurateness is vital and where overhead cost is high, since little
changes in every manufactured goods cost can create a huge
variation on the whole. However this technique makes it simple
to imagine and recognize all indirect expenses and actions

Analysis
Identification of cost pools and assignment of costs
• Initially direct cost attributable to department is
determined.
• Further, building related costs is determined on the basis
of Square footage for each facility
• Other remaining cost is allocated as per activities based
system in which %of trainer time utilised for classes and
Supplies used for veterinarian services has been
considered as directly attributable and remaining amount
is distributed equally.

Analysis
Determination of a cost driver for each cost pool and explanation of selection
Particulars Amount Cost driver
Director and staff salaries $60,000 Director and training
Animal shelter employees’ salaries 100,000 Animal shelter
Veterinarians and technicians 150,000 Veterinarian clinic
Animal trainers 40,000 50% of trainer time used in classes and
remaining is equally distributed
Food and supplies 125,000 Supplies used for veterinarian services
and remaining for Animal shelter
Building-related costs 200,000 Square footage of each cost pool

Analysis
Calculation of the allocation rates for each
cost pool and cost driver
Statement showing Identified Cost pools and Cost Assigned
Particulars Total Cost Animal Shelter Director and Training Veterinarian Clinic
Director and Staff Salaries 60000.00 0.00 60000.00 0.00
Animal Shelter Employees Salaries 100000.00 100000.00 0.00 0.00
Veterinarians and Technicians 150000.00 0.00 0.00 150000.00
Building Related Cost (In Proportionate of
Area) 200000.00 100000.00 60000.00 40000.00
Supplies used for Veterinarian Services 125000.00 50000.00 0.00 75000.00
Animal Trainers 40000.00 10000.00 20000.00 10000.00
260000.00 140000.00 275000.00
Cost Drivers Number of Animals Housed Number of classes offered Number of Animal Visits
Number of Activity 4500.00 125.00 5000.00
Cost/activity 57.78 1120.00 55.00

Findings
• The present study shows allocation of cost by making use of
activity based costing among three departments i.e. Animal
Shelter, Director and Training and Veterinarian Clinic
department.
• Traditional costing system has been avoided due to its certain
limitations i.e. cost accounting in this method is not as precise as
ABC systems.
• By making use of computed rates, business can determine prices
for different services to compute overall costs.

Limitations
• Due to limited information cost of food and supplies and
training is allocated by making following assumptions:
• Apart from $75000, remaining $50000 is allocated to animal
shelter as there will be no use of this expense in Director
department.
• Further remaining 50% training cost is allocated equally in
remaining two departments.

References
• Plank, P., 2018. Introduction. In Price and Product-Mix Decisions Under Different
Cost Systems (pp. 1-5). Springer Gabler, Wiesbaden
• Christian, D., 2018. Building Cost Management: Case Study Using Costing
Methods. IJAME.
• Oseifuah, E.K., 2018. Activity based costing (ABC) in the public sector: benefits
and challenges. Management, 12, pp.4-2..
• Neto, J.V., Ibanez, F.C., de Oliveira Costa, C.L. and Pimentel, L.B., 2015.
COMPARISON OF TRADITIONAL FINANCIAL ACCOUTING INDICATORS WITH
EVA® COMPANIES IN THE BUILDING IN ORDER TO ASSESS ITS ADVANTAGES
AND DISADVANTAGES. Brazilian Journal of Operations & Production
Management, 12(1), pp.100-115.