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3_7 points) Marvel Bank & Trust operates in a very competitive marketplace, using a traditional labor-hour-based system to determine the cost of processing its mortgage
3_7 points) Marvel Bank & Trust operates in a very competitive marketplace, using a traditional labor-hour-based system to determine the cost of processing its mortgage loans. Recently, the firm explored a switch to activity-based costing to determine the wisdom of its previous ways. The following information is available: Cost Drive $900,000 Applications Driver Units 4,000 Activity Application processing Loan underwriting Loan closure Total 800,000 Underwriting hours 880.000 Legal hours $2.580,000 16,000 8,000 Two loan applications, among many others, were originated and closed during the year. No. 7439 consumed 3.5 hours in loan underwriting and 1.5 hours in loan closure for a total of 5.0 hours. No. 7809 also required 5.0 hours of time, subdivided as follows: 2.0 hours in loan underwriting and 3.0 hours in loan closure. Required: A. Use an activity-based costing system and determine the cost of processing, underwriting, and closing the two loan applications. B. Determine the cost of processing the two loans if Marvel uses the traditional labor-hour-based system. Conversations with management found that, on average, each application took nine labor hours of processing time, excluding underwriting and closure
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