Brain Jones, the manager of Walkabout tours, uses activity-based costing to calculate the cost of the company's adventure walking trips. The company offers two basic trips: a two-day walk along the EI Questro Gorge and a five-day trip to the Filnders Rangers. The activities and costs relevant to the walking trips are as follows:
Activity __________________ Activity driver __________ Cost per unit of activity driver
Advertise trips ..................... No. of trips ....................................... $75 per trip
Obtain National Park permit ..... Destination ................... $150 per group permit issued
Use equipment ................. No. of person-days .................... $30 per person per day
Insure participants ................ No. of people .............................. $7.50 per person
Cook meals ..................... No. of person-days ................ $37.50 per person per day
Guide walkers ..................... Distance walked .................... $10.50 per kilomoetre
The El Questro Gorge trip caters for 8 people, does not enter National Parks and covers a walking distance of 50 kilometres. The Flinders Ranges trip caters for 15 people, is based in the Mt Remarkable National Park, and covers too kilometres.
Required:
1. Calculate the total cost of each trip, the cost per person for each trip, and the cost per day for each trip, using the activity-based costing system.
2. Before introducing activity-based costing, Brian had estimated the average cost of all trips at $97.50 per person per day. (This was based on the previous year's costs, adjusted for any expected changes.) Explain how the activity-based system results in more accurate service cost estimates?