Reference no: EM132516321

Brian 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 El Questro Gorge and a five-day trip to the Flinders Ranges. 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 kilometre

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 100 kilometres.

Required:

Question 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.

Question 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.