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ABC Costing for a Service Organization Fairfield Mortgage Company is a full-service residential mortgage company in the Atlanta area that operates in a very competitive
ABC Costing for a Service Organization Fairfield Mortgage Company is a full-service residential mortgage company in the Atlanta area that operates in a very competitive market. The CEO, Richard Sissom, is concerned about operating costs associated with processing mortgage applications and has decided to install an ABC costing system to help him get a handle on costs. Although labor hours seem to be the primary driver of the cost of processing a new mortgage, the labor cost for the different activities involved in processing new loans varies widely. The Accounting Department has provided the following data for the company's five major cost pools for 2019: Activity Cost Pools Activity Drivers Taking customer applications $300,000 Time-assistant managers 12,000 hours Conducting credit investigations 450,000 Time-credit managers 16,500 hours Underwriting 525,000 Time-Underwriting Department 10,000 hours Preparing loan packages 200,000 Time-Processing Department 8,000 hours Closing loans 600,000 Time-Legal Department hours 6,000 hours $2,075,000 52,500 hours During 2019, the company processed and issued 5,000 new mortgages, two of which are summarized here with regard to activities used to process the mortgages: Loan 5066 Loan 5429 1.50 2.75 4.00 3.00 2.50 Application processing hours Credit investigating hours Underwriting hours Processing hours Legal processing hours Total hours 3.50 4.75 3.00 1.50 1.50 13.00 15.00 a. Determine the cost per unit of activity for each activity cost pool. Round rates to two decimal places. Activity-based overhead rates: $ Taking applications Conducting credit investigations $ Underwriting Preparing loan packages $ $ Closing loans $ b. Determine the cost of processing loans 5066 and 5429. Round answers to two decimal places. Loan 5066 Loan 5429 Taking applications $ $ Investigations Underwriting Loan packages Closing loans Total costs $ $ c. Determine the cost of preparing loans 5066 and 5429 assuming that an average cost per hour for all activities is used. Round answers to two decimal places. Average cost per hour for all activities $ Use rounded rate calculated above for calculations below. Round answers to two decimal places. Cost of Loan #5066 $ Cost of Loan #5429 $
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