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COMMENT. Costs are higher in the ABC system as the PES job is relatively small and makes use of a number of activities whose costs

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COMMENT. Costs are higher in the ABC system as the PES job is relatively small and makes use of a number of activities whose costs are not proportionate to volume. P.12.10 The management of Reliance Telecom Gurgaon area customer care centre is contemplating the implementation of the ABC system. The centre has 1,96,000 residential customers and 50,000 commercial customers. The relevant data are summarised below: Resource Monthly cost j13 Percentage of resource used in activity (%) Billing Account Correspondence Verification Others inquiry 40 35 17 8 15 85 30 1 Supervisors 2 Account inquiry labour 3 Billing labour 4 Paper 5 Computers 6 Telecommunications 7 Occupancy 8 Printers 9 Others 70 100 30 7 31.22,000 4,08,000 1.80,000 23,200 5,72,000 1.98,400 2.24,000 3.00.000 2.36.000 22,63,680 1 on II 0 48 85 70 10 11111811 15 80 5 15 15 15 100 Total Activity Cost driver Monthly number of cost driver units Residential Commercial 1 Printing Lines 23,52,000 25,00,000 48,52,000 2 Account inquiry Inquiries 19,600 15,000 34,600 3 Correspondence Letters 3,920 5,000 8,920 4 Verification Accounts 98,000 25,000 1,23,000 The management of Reliance Telecom has decided not to allocate the other resource costs. REQUIRED: (a) Prepare schedules to determine the cost per driver unit for each activity and the activity-based cost per account for each customer type. (b) Consider the verification activity. Suppose the cost per account verified is 20.90. The centre verifies 50 per cent of residential and accommodation bills. Given that there are, on an average, 50 lines on each commercial bill and only 12 lines on each residential bill, comment on the use of accounts verified as a cost driver. What could be a more plausible and reliable cost driver

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