New Liberty Mortgage Company is a full-service residential mortgage company in the Chicago area that operates in a very competitive market. The CEO, David Ross, 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 activiues involved in processing new loans varies widely. The Accounting Department has provided the following data for the company’s five major cost pools for 2017:

During 2017, the company processed and issued 9,000 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 7023 and 8955.

c. Determine the cost of preparing loans 7023 and 8955 assuming that an average cost per hour for all activities is used.

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

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Activity Cost Pools Taking customer applications...... Conducting credit investigations Underwriting....... Preparing loan packages Closing loans Activity Drivers 364,900 Time-assistant managers.. 17,800 hours 350,000 Time-credit managers 12,500 hours 787,500 Time-Underwriting Department... 15,000 hours 585,000 Time-Processing Department 22,500 hours 1,485,000 Time-Legal Department.... 18,000 hours $3,572,400 85,800 hours