Required:

(a) Using traditional costing system, compute the total overhead cost assigned to both services of Farm and Pet Veterinary Clinic. (3 marks)

(b) Compute the total overhead cost assigned to both services under the Activity Based Costing (ABC) method. (11 marks)

(c) The cost estimating of services is not required by the accounting standard. State and explain three reasons why the partners of Farm and Pet Veterinary Clinic are still interested to estimate the cost of their services. (6 marks)

* Keep your intermediate and final answers to full decimal places where applicable.

Question 2: (20 marks) Farm and Pet Veterinary Clinic in a small town is offering two primary services, farm animal services and pet care services. Providing veterinary care to farm animals requires travel to the farm (house calls), while veterinary care to pets generally requires that the pet be brought into the clinic As part of an investigation to determine the contribution that each of these two typesof services makes to overall profit, one partner argues for allocating overhead using activity-based costing while the other partner argues for a simpler overhead cost allocation on the basis of direct labour hours. The partners agreed to use next year's budgeted data, as prepared by their accountant, for analysis and comparison purposes. The following overhead data are collected to develop the comparison. Budgeted cost drivers used by Activity cost pools Pets Farm animals Drug treatment Surgery Travel Consultation Cost drivers Estimated Budgeted overhead use of cost $ drivers Treatments 64,000 4,000 Operations 65,000 800 Mileage 28,000 28,000 Appointment 33,000 3,000 /Calls 1,700 200 26,000 600 2,200 600 2,000 2,400 Direct labour hours Accounting / administration 30,000 5,000 2,000 3,000 Boarding and grooming 100% Pet 40,000 260,000