This is an example of ABC for a service company. Costko Payroll Services provides weekly payroll processing for a number of small businesses. Patrick Costko, the company's owner, has been using activity-based costing system for several years. He used the following information in preparing this year's budget.
Activity Cost Pool Total Cost Cost Driver Expected Driver Volume
Setting up new employees $75,000 No. of employees 500
Processing weekly payroll $780,000 No. of paychecks printed 2,500,000
Weekly reporting $300,000 No. of clients 100
Annual tax reporting $240,000 No. of W-2s printed 60,000
Required:
(a) Calculate the four activity rates.
(b) Patrick is preparing a proposal for a prospective client, Turlock Dialysis Center. The client has 20 employees. What is the estimated cost of providing weekly payroll services to this client for the first year?