Data Processors Ltd performs credit card services for banks. The entity uses an activity based costing (ABC) system. Following is information for the past year:

Required

(a) Using standard values for costs and activity, calculate an ABC allocation rate for each activity.

(b) Prepare an operating cost statement for Data Processors Ltd that compares the static budget, the flexible budget and actual costs.

(c) Calculate the spending variance for the cost of processing transactions. Treat this activity the same way you would treat variable overhead costs.

(d) Suppose the costs for processing transactions include some fixed and some variable costs, as shown:

Given this new information, calculate spending variances for the cost of processing transactions.

(e) Discuss possible reasons for the variances calculated in part (d). The CEO and CFO of Data Processors want your opinion about whether and how ABC variance information should be used in departmental manager performance evaluations.

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Activity Processing transactions Issuing monthly statements Issuing new credit cards Resolving billing disputes Total Estimated cost Actual cost Cost driver $2 000 000 $2 200 000 1300 000 Number of transactions 1 000 000 Number of statements 500 000 400 000 Number of new credit cards 90 000 100 000 Number of disputes $3 590 000 $4 000 000 Cost driver Estimated activity level Actual activity level Number of transactions 5000 000 250 000 5 800 000 Number of statements 270 000 Number of new credit cards 100 000 110000 Number of disputes 3 000 3500