Cost Management A Strategic Emphasis 7th Edition Chapter 15 Problem 47 (1, 2, 3,
ID: 2488719 • Letter: C
Question
Cost Management A Strategic Emphasis 7th Edition
Chapter 15 Problem 47 (1, 2, 3, & 4)
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:
This is a 4 question problems. Questions 1 and 2 have been answered. You need number 2 to do number 3.
Required:
1. Has been answered already.
2. Has been answered already but you need number 2 to answer number 3. 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 order 75% 8,000 cusotmer orders Processing customer complaints 10% 400 customer complaints Conducting customer credit checks 15% 500 credit checksExplanation / Answer
1
2
3
For each activity, we calculate in (2) an estimated cost of unused capacity The company should monitor these amounts (or variances) over time and evaluate whether some of the capacity can be eliminated OR whether there are alternative profitable uses for this available, but unused, capacity.
4
Customer Service activities can be viewed as part of the larger "Customer Management "process. Conceptually, the company should establish one or more key objectives regarding"customer service" Each of these specified objectives would include one or more performance measures (metrics). Below are some plausible objectives and associated non-financial performance metrics that the company might monitor:
Respond Quickly to Customer Feedback and Complaints:
a) Average time needed to resolve customer complaint...
b) quality ratings from targeted customers
c) % of customer inquiries not satisfied on initial contact with the company
Increase the Accuracy of Performing Credit Checks
:a) % of credit-check errors
Increase the Efficiency of Performing Customer Credit Checks:
a) Average processing time per credit check performed
b) Number of credit checks performed per employee per week (or month)
Activities Allocated Cost Estimated (Budgeted) Cost-Driver Quantity Activity-Cost Driver Rates Handling Customer Orders 75% 600000 8000 75 Processing Customer Complaints 10% 80000 400 200 Conducting Customer Credit Checks 15% 120000 500 240 100% 800000