ABC Data; Resource-Capacity Planning; Nonfinancial Performance Indicators ZenonComputer competes at the retail level on the basis of customer service. It has invested significantresources in its customer service department. Recently, the company has installed a traditionalactivity-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 departmentare 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 whenthe ABC system was implemented, revealed the following information:ActivitiesPercentage ofEmployee TimeEstimated (Budgeted)Cost Driver QuantityHandling customer orders 75% 8,000 customer ordersProcessing customer complaints 10 400 customer complaintsConducting customer credit checks 15 500 credit checksRequired1. Based on the preceding information, calculate (to 2 decimal places) the activity cost driver (ABC) ratesfor each of the three activities performed by the customer service department. Assume that during theperiod actual cost driver activity levels are exactly as planned. Under this situation, what is the total costallocated to each of the three activities? For each activity, what is the cost of unused (that is, idle) capacity, rounded to the nearest whole dollar?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 customerorders, 500 customer complaints, and 500 credit checks. Using cost-driver rates based on the practicalcapacity level for each activity: (a) What is the cost assigned to each of the three activities, roundedto the nearest whole dollar? (b) What is the unused capacity for each activity (rounded to the nearest whole number)? (c) What is the cost of unused capacity for each activity, rounded to the nearestwhole dollar?3. What actions might the management of Zenon Computer take in response to the analysis conducted inresponse to requirement 2?4. What nonfinancial performance indicators do you recommend Zenon Computer monitor in terms of itscustomer service department? In general, how are these indicators chosen? (That is, how do you justifythe items you are recommending?)
ABC Data; Resource-Capacity Planning; Nonfinancial Performance Indicators 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 $800,000. 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% 8,000 customer orders
Processing customer complaints 10 400 customer complaints
Conducting customer credit checks 15 500 credit checks
Required
1. Based on the preceding information, calculate (to 2 decimal places) 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? For each activity, what is the cost of unused (that is, idle) capacity, rounded to the nearest whole dollar?
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 the practical
capacity level for each activity: (a) What is the cost assigned to each of the three activities, rounded
to the nearest whole dollar? (b) What is the unused capacity for each activity (rounded to the nearest whole number)? (c) What is the cost of unused capacity for each activity, rounded to the nearest
whole dollar?
3. What actions might the management of Zenon Computer take in response to the analysis conducted in
response to requirement 2?
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?)
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