At New England Goods Inc., product lines are charged for call center support costs based on sales revenue. Last year's summary of call center operations revealed the following:

Surveillance Products Specialty Products

Number of calls for information 4,000 1,000

Average call length for information 8 minutes 3 minutes

Number of calls for warranties 300 1,200

Average call length for warranties 15 minutes 7 minutes

Sales revenue $8,000,000 $5,000,000

New England Goods Inc. currently allocates call center support costs using a rate of 0.6% of sales revenue.

Required:

What kind of a costing system is your company using? Justify your answer. (actual or normal traditional or refined)

Compute the amount of call center support costs allocated to each product line under the current system.

Would you recommend refining the costing system? Why or Why not? Present convincing arguments.

Your management is against your proposal to refine your existing costing system. How would you convince him?

Assume New England decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000. Compute the amount of call center support costs assigned to each product line under this revised ABC system.

What would be the obstacles preventing or delating the refining of your companies costing system?

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