Required information Skip to question [The following information applies to the questions displayed below.] Zenon Computer 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 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 $832,000. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information: Activities Percentage of Employee Time Estimated (Budgeted) Cost Driver Quantity Handling customer orders 75% 8,320 customer orders Processing customer complaints 10 416 customer complaints Conducting customer credit checks 15 520 credit checks Required: 1. Based on the preceding information, calculate the activity cost driver (ABC) rates for each of the three activities performed by the customer service department. Assume that during the period, actual cost driver activity levels are exactly as planned. Under this situation, what is the total cost allocated to each of the three activities? 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 10,400 customer orders, 520 customer complaints, and 520 credit checks. Using cost-driver rates based on the practical capacity level for each activity: (a) What is the cost assigned to each of the three activities? (b) What is the unused capacity for each activity? (c) What is the cost of unused capacity for each activity?
Required information Skip to question [The following information applies to the questions displayed below.] Zenon Computer 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 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 $832,000. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information: Activities Percentage of Employee Time Estimated (Budgeted) Cost Driver Quantity Handling customer orders 75% 8,320 customer orders Processing customer complaints 10 416 customer complaints Conducting customer credit checks 15 520 credit checks Required: 1. Based on the preceding information, calculate the activity cost driver (ABC) rates for each of the three activities performed by the customer service department. Assume that during the period, actual cost driver activity levels are exactly as planned. Under this situation, what is the total cost allocated to each of the three activities? 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 10,400 customer orders, 520 customer complaints, and 520 credit checks. Using cost-driver rates based on the practical capacity level for each activity: (a) What is the cost assigned to each of the three activities? (b) What is the unused capacity for each activity? (c) What is the cost of unused capacity for each activity?
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