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.
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