Lecture 6

VETERINARY ECONOMICS
dr Mariusz Maciejczak
Winter 2019/2020
Lecture 6
Selected issues in Microeconomics:
• Activity Based Costing
Requirement of Cost Systems
• Valuation of inventory and measurement of the
cost of goods sold for financial reporting.
•Estimation of the costs of activities, products,

services, and customers.
•Providing economic feedback to managers

and operators about process efficiency.
https://www.youtube.com/watch?v=ivlI0HvUPQo
Traditional (proportional)
Vet NURSE Vet DOCTOR
2000 $ 10000 $
12000 $
No of services 10=1%
990=99%
Service A Service B
11880 $ 120 $
A: 12000$ * 99% = 11880$

Unit cost: 11880/ 990 =12$
B: 12000$ * 1% = 120$
Unit cost: 120/ 10 =12 $
7
ABC
Vet NURSE Vet DOCTOR
2000 $ 10000 $
Assistance Treatment
50%
Time of work 50% No of
1%
services
99%
Service A Service B
10900 $ 1100$
A: 2000$ * 50% + 10000$ * 99%=10900

Unit cost: 10900/ 990 =11,01 $
B: 2000$ * 50% + 10000$ * 1%=1100

Unit cost: 1100 / 10 =110 $
8
Traditional (proportional) ABC
Vet NURSE Vet DOCTOR Vet NURSE Vet DOCTOR
2000 $ 10000 $ 2000 $ 10000 $
12000 $ Assistance Treatment

50%
Time of work 50% No of
No of services 10=1% 1%
990=99% services
99%
Service A Service B Service A Service B
11880 $ 120 $ 10900 $ 1100$
A: 12000$ * 99% = 11880$ A: 2000$ * 50% + 10000$ * 99%=10900

Unit cost: 11880/ 990 =12$ Unit cost: 10900/ 990 =11,01$
B: 12000$ * 1% = 120$ B: 2000$ * 50% + 10000$ * 1%=1100

Unit cost: 120/ 10 =12 $ Unit cost: 1100 / 10 =110 $
9
Activity-Based Costing
Operationalizing the two-stage model requires:

 Identifying activities.
 Assigning costs to activities.
 Determining the basis for assigning the cost
of activities to cost objectives.
 Determining the cost per unit of activity.
 Reassigning costs from the activity to the
cost objective on the basis of the cost
objective’s consumption of activities.
ABC - 10
Two-Stage Activity Based Costing
Method
First stage: Costs assigned to resources

are reassigned to activities.
Cost of Cost of Cost of
Resource 1, Resource 2, Resource n
i.e XRt loan i.e. USG
depreciation
Activity Activity Activity Activity Activity

1 2 3 4 n
Two-Stage Activity Based Costing
Method
Second stage: Costs assigned to activities are reassigned to
cost of services using an activity cost driver.
Activity Activity Activity Activity Activity

1 2 3 4 n
Service 1 Service 2 Service 3 Service n

Small Vet Clinic – a case study
VMD John Kowalsky owns Small Vet Clinic
specialising in pets’ treatment. He is poviding
only 4 services: surgery, vaccinations, cosmetic
treatments and xRt. His accountant – Mona
adviced him to calculate the fixed costs
proportionally to the No. of services provided
and use 25% of margine over the total costs to
determine the price of service, as priory adviced
by his technician Andy.
In 2017 on average SVC provided monthly:
- 5 surgeries,
- 25 vaccinations,
- 70 cosmetic treatments,
- 30 xRts.
Dr John calculated that:
1. For one average surgery:
a) Disposable equimpent costs are 50$/
b) Pharmaceuticals are 150$
2. For one average vaccinations:
3. For one average cosmetic treatment:
4. For one average xRt:
The accountant – Mona, informed dr John that
monthly average costs of overheads in 2016
were:
1. John salary – 8000$
2. Andy salary – 3000$
3. Mona invoice – 500$
4. Rent of space – 2500$
5. Media (water, electricity, savage) – 700$
6. Loan installment for xRt – 400$
Advice dr John about:
1. Total Monthly Costs of his activity, incl. Direct
and Indirect costs.
2. Total Unit Costs per service using Mona’s
approach
3. Total Unit Costs per service using ABC
method.
4. Price he should offer for his services.
Small Vet Clinic – a case study
VMD John Kowalsky owns Small Vet Clinic specialising in pets’ treatment. He is
poviding only 4 services: surgery, vaccinations, cosmetic treatments and XRt.
His accountant – Mona adviced him to calculate the fixed costs proportionally
to the No. of services provided (as required by the tax office) and use 25% of
margine over the total costs to determine the price of service, as adviced of his
vet technician Andy.
In 2016 on average SVC provided monthly:
- 5 surgeries,
- 25 vaccinations,
- 70 cosmetic treatments,
- 30 xRts.
Dr John calculated that:
1. For one average surgery:
2. For one average vaccinations:
3. For one average cosmetic treatment:
4. For one average xRt:
The accountant – Mona, informed dr John that monthly average costs of
overheads in 2016 were:
1. John salary – 8000$
2. Andy salary – 3000$
3. Mona invoice – 500$
4. Rent of space and equimpent – 3500$
5. Media (water, electricity, savage) – 700$
6. Loan installment for xRt equipment – 400$
Advice dr John about:
1. Total Monthly Costs of his activity, incl Direct and Indirect costs.
2. Total Unit Costs per service using Mona’s approach
3. Total Unit Costs per service using ABC method.
4. Price he should offer for his services.
Thank you

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VETERINARY ECONOMICS

•Estimation of the costs of activities, products,

•Providing economic feedback to managers

Vet NURSE Vet DOCTOR

A: 12000$ * 99% = 11880$

Vet NURSE Vet DOCTOR

A: 2000$ * 50% + 10000$ * 99%=10900

B: 2000$ * 50% + 10000$ * 1%=1100

Vet NURSE Vet DOCTOR Vet NURSE Vet DOCTOR

2000 $ 10000 $ 2000 $ 10000 $

12000 $ Assistance Treatment

11880 $ 120 $ 10900 $ 1100$

A: 12000$ * 99% = 11880$ A: 2000$ * 50% + 10000$ * 99%=10900

B: 12000$ * 1% = 120$ B: 2000$ * 50% + 10000$ * 1%=1100

Operationalizing the two-stage model requires:

First stage: Costs assigned to resources

Activity Activity Activity Activity Activity

Activity Activity Activity Activity Activity

Service 1 Service 2 Service 3 Service n

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