5-30 (LO1, APPEND Original ABC for shared services, outsourcing, implementation issues Smithers Inc. manu- factures and sells a wide variety of consumer products. The products are viewed as sufficiently profitable, but recently, some product-line managers have complained about the charges for the call center that handles phone calls from customers about the products. Product lines are currently charged for call center support costs on the basis of product sales revenues. The manager of product X is particularly upset because he has just obtained a report that includes the following information for last year: PRODUCT X PRODUCT Y Number of calls for information.... Average length of calls for information Number of calls registering complaints. Average length of complaint calls. Sales volume 2,000 3 minutes 200 5 minutes $400,000 4,000 5 minutes 1,000 10 minutes $100,000 Product X is simple to use, and consumers have little concern about adverse health effects. Product Y is more complex to use and has many health hazard warnings on its label. Smithers currently allocates call center support costs using a rate of 5% of net sales dollars. The manager of product X argues that the current system does not trace call center resource usage to specific prod- ucts. For example, product X bears four times the call center costs that product Y does, although fewer calls are related to product X, and the calls consume far less time. Required (a) What activity cost driver would you recommend to improve the current system of assigning call center support costs to product lines? Why is your method an improvement? (b) Suppose Smithers announces that it will now assign call center support costs on the basis of an ABC system that uses minutes of calls (calls for information and calls for complaints) as the activity cost driver. Suppose also that the rate is 70 cents per minute. Compare the call center cost assignments to product X and product Y under the previous system and the new ABC system. ble reactions of the call center staff and other staff who might be affected by efforts to reduce minutes of calls. (e) From the company's point of view, how might the ABC system help in the assessment of whether to outsource the call center activities