Mehil owns a taxi business in Newcastle. He recently expanded his business by including limousines.
Mehil’s accountant has provided the following information on monthly revenues and costs:
· The taxi division has monthly revenues of $3,475,000
· The Limousine division generates revenues of $375,000.
· Expenses of $2,656,750 were allocated to divisions based on the number of kilometres travelled.
Mehil has heard about Activity Based Costing and wants to know what benefits it could provide, so he has obtained the following monthly information on expenses for NSW:
| Taxis | Limousines | |
| Bookings | 44,000 | 1,500 |
| Kilometres | 1,200,000 | 150,000 |
| Driver hours | 67,500 | 10,000 |
Mehil has identified that the main activity cost areas include salaries, vehicle costs and booking fees.
| Salaries | $1,360,000 |
| Booking fees | $22,750 |
| Fuel | $1,193,000 |
| Call centre booking fees | $45,500 |
| Vehicle maintenance | $35,500 |
Complete the following activities:
1. Identify the appropriate cost pools and calculate the appropriate driver rates for the activities listed above.
You may wish to use the following table in your answer
Ans.
| Cost pool | Cost | Driver | Driver unit | Driver rate |
| Booking Cost Fuel | $68,250 | No of Booking | 45,500 | 1.50 |
| Payroll cost Fuel | $1,360,000 | No of Hours | 77,500 | 17.55 |
| Motor Vehicle Cost Fuel | $1,228,500 | No of Kilometres | 1,350,000 | 0.91 |
2. Using ABC costing, prepare a product line profitability report.
Show all workings in your answer and ensure you have reconciled data to ensure accuracy of calculations.
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