Mini Case 6 7 Activity Based Costing E-Power Deliveries owns a fleet of electric vehicles that it uses to make deliveries and pickups for customers in the city of Kitchener, Ontario. The company limits its services to overnight deliveries Within the surrounding Waterloo region. The company president, Andre Kuvindcr, is concerned because of a recent negative trend in net income despite a growing number of customers. In an effort to resolve this situation, he is looking for accounting assistance to better understand operational costs. Andre has hired a recently designated CPA to help him solve the dilemma. The CPA has decided to implement an activity-based costing system designed to provide relevant information to assist with decision making. The ABC system she designed has four activity cost pools: Travel (from customer to package recipient), Pickup and Delivery, Customer Service, and Other. The activity measures are kilometres for the Travel cost pool, number of pickups and deliveries for the Pickup and DWt pool (includes repeat deliveries ifrequired), and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure. The following actual costs will be assigned using the activity-based costing system: Driver wages $245,000 Vehicle operating expense 12,800 Vehicle depreciation 70,000 Dispatch personnel salaries 80,000 Officc expenses 28,000 Administrative expenses 69 000 Total $504,800 The distribution of resource consumption across the activity cost pools is as follows: Activity Cost Pools Pickup and Customer Travel Delivery Service Other Total Distribution: Driver wages 85% 10% 5% 0% 100% Vehicle operating expense 80% 20% 0% 0% 100% Vehicle depreciation 80% 20% 0% 0% 100% Dispatch personnel salaries 0% 0% 95% 5% 100% Office expenses 0% 10% 65% 25% 100% Administrative expenses 0% 15% 75% 10% 100% The activity measures and activity levels are presented below: Expected Activity Cost Pool: Activity Measure Activity Travel Kilometres 64,600 Pickup and Delivery Pickup/Delivery Trips 2,750 Customer Service Number of customers 82 Other No activity measure To get started Andre has asked that just two customers be reviewed before applying the analysis to the rest of the company's customer list. The actual activity for the two customers was determined to be: En Activity data for the following two M Homes customers: Supply Co. E Kilometres travelled for pickup/deliveries 185 392 Number of Pickup/Delivery trips 8 22 To date, E-Power Deliverics has charged a fixcd annual fee for each customer ifthc customer agreed to give the company all of its overnight delivery business. The annual fee charged to each customer is $3,800. Required: 1. Allocate the actual spending from the traditional general ledger accounts to the cost pools set up by the CPA. 2. Use the activity measures and actual activity to calculate activity rates. 3. Calculate the cost to service each of the two customers highlighted by the company president. 4. Is the company's practice of charging a at fee per customer likely to be contributing to the declining profit? Explain