Fairfield Mortgage Company is a full-service residential mortgage company in the Atlanta area that operates in a very competitive market. The CEO, Richard Sissom, is concerned about operating costs associated with processing mortgage applications and has decided to install an ABC costing system to help him get a handle on costs. Although labor hours & seem to be the primary driver of the cost of processing a new mortgage, the labor cost for the different activities involved in processing new loans varies widely. The Accounting Department has provided the following data for the company’s five major cost pools for 2016:

During 2016, the company processed and issued 5,000 new mortgages, two of which are summarized here with regard to activities used to process the mortgages:

Required

a. Determine the cost per unit of activity for each activity cost pool.

b. Determine the cost of processing loans 5066 and 5429.

c. Determine the cost of preparing loans 5066 and 5429 assuming that an average cost per hour for all activities is used.

d. Compare and discuss your answers to requirements (b) and (c).

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Activity Cost Pools Taking customer applications... Conducting credit investigations. Underwriting... Preparing loan packages. Closing loans... Activity Drivers $ 300,000 Time-assistant managers. 12,000 hours 450,000 Time-credit managers 16,500 hours 525,000 Time-Underwriting Department. 10,000 hours 200,000 Time-Processing Department 8,000 hours 600,000 Time-Legal Department hours. 6,000 hours $2,075,000 52,500 hours