Chapter 15 Problem 47 (Cost Management A Strategic Emphasis 7th Edition) ABC Dat

Question

Chapter 15 Problem 47 (Cost Management A Strategic Emphasis 7th Edition)

ABC Data; Resource -Capacity Planning; Nonfinancial Performance Indicators

Zenon Computer (a fictitious company) competes at the retail level on the basis of customer service. It has invested significant resources in its customer service department. Recently, the company has installed a traditional activity-based costing (ABC) system to provide better-quality cost information for pricing, decision making, and customer-profitability analysis. Most of the costs of running the customer service department are considered committed (i.e., short-term fixed) costs (principally, personnel and equipment costs). The budgeted cost for the upcoming period is $800,000. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information:

                                                                                             

Required:

1. This question has been answered.

2. Suppose that during the upcoming period, activities (i.e., cost-driver quantities) are exactly as budgeted. Suppose, too, that the practical capacity level for each of these activities is 10,000 customer orders, 500 customer complaints, and 500 credit checks. Using cost-driver rates based on practical capacity levels for each activity, what is the cost assigned to each of the three activities? Also, what is the unused capacity and the associated cost of unused capacity for each activity?

3. What actions might the management of Zenon Computer take in response to the analysis conducted in response to (2) above?

4. What nonfinancial performance indicators do you recommend Zenon Computer monitor in terms of its customer service department? In general, how are these indicators chosen? (That is, how do you justify the items you are recommending?)

Activities % of Employee Time Estimated (Budgeted) Cost-Driver quantity Handling customer orders 75% 8,000 customer orders Processing customer complaints 10% 400 customer complaints Conducting customer credit checks 15% 500 credit checks

Explanation / Answer

2.

Cost assigned to each of the activity is calculated as under:

Unused capacity is 800,000- 616000 = 184,000

Activity Activity Cost Pool Cost driver Practical capacity level Cost assigned Handling Customer Orders 75% $6,00,000 Coustomer Order 10,000 60 4,80,000 Processing customer complaints 10% $80,000 Customer complaints 500 160 64,000 Conducting customer credit checks 15% $1,20,000 Credit checks 500 240 72,000 8,00,000 6,16,000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.