Activity cost driver rates The customer billing department at U.S. West Tele¬

communication, Inc. currently employs 25 billing clerks on annual contract. Each clerk works 160 hours per month. The average monthly wages of billing clerks, including benefits, amount to $2800. Other billing-related costs, includ¬ ing stationery and supplies, are $0.50 per billing.

The two types of customers are residential and business. For residential cus¬ tomers, billing takes on average 10 minutes to prepare; each business customer billing requires 15 minutes.

The following information pertains to the estimated number of customer billings for the months of June and July:

REQUIRED

(a) If the expected number of billings each month is used to determine a monthly billing activity cost driver rate, what is the activity cost driver rate for each month based on the expected number of billings?

(b) If the expected number of billing labor hours each month is used to deter¬ mine a monthly billing activity cost driver rate, what is the activity cost dri¬ ver rate for each month based on the expected number of billing labor hours?

(c) Compare the cost driver rates in

(a) and

(b) above. Which rate do you rec¬ ommend? Why?

(d) Can you recommend a better way to estimate the costs of this activity than using either cost driver rate in

(a) or

(b) above?

Transcribed Image Text:

MONTH June BUSINESS CUSTOMERS RESIDENTIAL CUSTOMERS 8,000 12,000 July 6,000 15,000