5-48 Personnel Planning; TDABC Recent competitive pressures have caused National Insurance Company to examine policies regarding personnel planning. As a start, the company has decided to experiment with and develop a time-driven ABC model for its claims processing center. A study of this support center indicates the following three primary activities: remote processing of customer claims, 0.5 hour; onsite processing of customer claims, 1.0 hour; and, updating/ maintaining customer records, 0.2 hour. Onsite processing is required for larger claims, while remote processing is done for smaller claims. (For onsite processing, assumefor simplicitythat the claims processors use their own automobiles.)

All claims will require that the customers records be updated. The claims processing center currently employs three full-time employees. Total annual cost of the center (salaries, depreciation, utilities, etc.) is estimated at $255,000. The net amount of available personnel time per year for this department is approximately 5,000 hours.

Required

1. Assume now that the customer mix reflected above in requirements 2 and 3 were to change as follows: number of remote cases, 2,700; number of onsite claims, 2,000. How much labor processing time would be needed to service this revised level of service demand? What support cost would be budgeted for each class of customer?

2. In response to the projected shift in customer mix reflected above in requirement

3, why might the company not experience an immediate financial improvement? Put another way, will Nationals resource spending necessarily decrease in response to the shift in customer demand?