View the step-by-step solution to:







Existing Information System Bangor Town's previous accountant had established a system to determine the cost per client
visit. According to this method, shown in Table 2, the cost was a yearly average for all client
visits. The accountant would first determine the direct cost of each activity. He would then
add overhead costs, such as administration, rent, and utilities to the total cost of all the
activities to determine the Club’s total costs. Finally, he would divide the total by the year‘s
number of visits. Increased by an anticipated inflation figure for the following year (usually
about 4 to 5 percent), this number became the projected cost per visit for the subsequent year.


Table 2. Costs and Customer Visits for the Year 2019, by Department Activity Client visits Salaries Others * Total {£)
Yoga 5,000 20,000 8,000 28,000
Aerobic Training 10,000 5,000 15,000 20,000
Nutrition Counselling 2,100 30,000 16,000 46,000
Seaweedu'Mud Soaks 4,000 2?,000 6,000 33,000
Weight Clinic 1,400 15,000 8,000 23,000
Swimming 1,500 5,000 8,000 13,000
Nautilus Workouts 2,500 32,000 10,000 42,000
Massage Therapy 6,400 20,000 10,000 30,000
Subtotal 32,900 154,000 81,000 235,000 Administration 38,000 2,000 40,000
Rent 36,000 36,000
Utilities 10,000 10,000
Training and Education 16,000 9,000 25,000
Cleaning 6,000 6,000
Record keeping 1000 3,000 10,000
Total 215,000 147,000 362,000 ‘ Includes materials, supplies, deoteciation, contracted services, and other non-personnel expenses In reviewing this method with Mr. Moore, Ms. Flynn explained the problems she perceived.
She said that although she realized this was not a precise method of determining cost for
clients, the spa“ s cost per visit had to be held at a reasonable level in order to keep its services
accessible to as many community residents as possible. Additionally, she anticipated
complications in determining the cost per visit for each of Bangor Town's departments: " You have to consider that our o1erhead costs, like administration and rent need to
be included in the cos t per visit. That's easy to do when we have a single cost, butI'm
not certain how to go about it when determining costs on a activity basis
Furthermore it's important to point out that some of our activities provide services to
others. Nutrition Counselling, for example. There are three counsellors in that
deoartmem, all earning the same salary. But one works exclusively for the Weight
Clinic, while another divides her time evenly between Aerobic Raining and Yoga
Only the third spends his entire time in Counselling, seeingclients who don‘t need
other services. In theNautilus Department, the situation is more conga let. We have two part—
time experienced trainers, each earning H2, 000 a year, and one part—time
inexperienced trainer earning £8, 000. The two experienced trainers yearly see about
13,500 clients who need general assistance but they also spend abouthalf of their time
in other departmems. The inexperienced trainer spends time pretty evenly across all
departments. ”


Mr. Moore added finiher dimensions to the problem: “ I “we spent most of my time so far trying to get a handle on allocating these oierhead
[costs to activities. It's not an easy job, you know. Administration, for example, seems
to help everyone about equally, yet I suppose we might say more administrative time
is spent in the departments where we pay more salaries. Rent on the other hand, is pretty easy: it can be done on a square—fiiot basis. We could classifi' utilities
according to usage if we had meters to measure electricity, phone usage and so forth, but because we don't we have to do that on a square—joot basis as well. This applies to
cleaning too, I guess. It seems to me that record keeping can be allocated on the
basis of the number of records, and each department generates one record per client
visit. Training and Education (T & E} work is the most confitsing. Some departments don ‘t use it at all, while others use it regularly. I guess the fairest would be to charge for T dlz E on an hourly basis. Since there are two people in the department, each working
about 2, 000 hours a year, the charge per hour would be about £4. 00. But this is a bit unfair, since T (f: E also uses supplies, space and administrative time.
So we should include those other costs in its hourly rate. Thus, the process is
confitsing and I haven ‘t really decided how to sort it out. However, I have prepared
data on floor space and T & E usage (Table 3). " Table 3. Floor Space and Training & Education (T&E) Usage, by Department Department Floor Space (sq. ft.) T&E Usage [hrstyealj
Yoga 1,000 1,000
Aerobic Training 1,300 200
Nutrition Counselling 300 2,400
Seaweede Soaks 500 100
Weight Clinic 1,000 —
Swimming 1,800 —
Nautilus Workouts 1,100 100
Massage Therapy 1,000 200
Administration 500 —
Training and Education 1,200 —
Record keeping 300 — Total 10,000 4,000

Top Answer

The advantage of the existing method is that it is easy and... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question