496 Accounting: Business Reporting for Decision Making
their time on meal-related activities, 20 per cent supervising naps or recreation, 10 per cent in
greeting or sending children home, and the rest of the time presenting educational experiences
to the children. Meals and snacks cost about $20 000. Preschoolers receive two snacks and one
meal per day, and the older children receive one snack per day. On average, snacks and meals
do not differ in cost. Supplies cost $10 000 for the full-time childcare program and $8000 for
the after-school program. Currently, 30 children participate in full-time care and 10 children in
after-school care. Because Elite Daycare maintains a waiting list for openings in its programs,
the number of children in each program remains steady. The centre is open 192 days per year.
Required
a. Identify the cost objects of interest and then choose a set of activities and cost drivers for Elite
Daycare’s activity-based costing system. Explain your choices.
b. Using the activities you chose in part (a), estimate the annual cost per child in each program.
c. Do uncertainties exist about the proportion of salaries and wages that should be allocated to
full-time care versus after-school care? Why or why not?11.34 Costing in a service firm LO3, 4
Kane & Associates is a local legal entity employing six solicitors, four paralegals and six admin-
istrative staff. The entity has a costing system that assigns costs to clients. There are two depart-
ments — legal support and commercial. The entity uses a different indirect cost rate for each
department. The following information was taken from the budget for the coming year.Legal support
departmentCommercial
departmentPlanned solicitor hours
Planned paralegal hours
Number of clients
Legal supplies
Salaries — solicitors and paralegals
Indirect costs$
$
$3 500300
17 400
174 000
116 000$
$
$11 200
6 000
1 150
33 600
820 000
475 000The indirect costs are allocated to the clients as follows.
• Departmental indirect costs — number of solicitor and paralegal hours.
• Legal supplies are charged on a per client basis.
The entity uses a cost-plus pricing policy with a 20 per cent mark-up.
Client Case Number FR110 has been completed and is ready for the invoice to be sent to the
client. The following costs and times were recorded for the client.
• Solicitor hours — Support 45 hours.
• Solicitor hours — Commercial 165 hours.
• Direct cost of solicitors — $15 030.
Required
a. Identify the type of costs included in legal supplies and department indirect costs.
b. Calculate the indirect cost rate for each department.
c. Calculate the indirect cost rate for legal supplies.
d. Determine the total cost for Client Case FR110.
e. Calculate the amount the client should be invoiced for the work undertaken.11.35 Service department cost allocation in service industries LO1, 3, 4, 5
Nationwide Travel is a travel agency with 20 offices located throughout Australia. Bob Sharp, the
managing director, recently attended an accounting seminar on cost allocation. During a coffee
break, he was overheard making the following comment to Anna Mangano, a local manufac-
turer: ‘Allocating service department costs to income-producing departments is necessary only
in service organisations. Your company would be wasting a lot of resources to conduct such an
exercise.’