Market Makers Inc. (MMI) provides a range of services to its retail clientscustomer service for inquiries, order taking, credit checking for new customers, and a variety of related services. Auto Supermarket (AS) is a large auto dealer that provides financing for the autos and trucks that it sells. AS has approached MMI to manage the inquiries that come in regarding these loans. AS is not satisfied with the performance of the call center it currently uses for handling inquiries on these loans and is considering a change to MMI. MMI has been asked to estimate the cost of providing the service for the coming year.

There are two types of loans at AS, one for autos and SUVs and another for light trucks. The loans for auto and truck buyers typically have different types of customers and loan terms, so the nature and volume of the inquiries are expected to differ. MMI would use its own call center to handle the AS engagement. The MMI call center's annual costs are as follows:

Call center costsSalaries$4,293,555Utilities2,557,446Leasing of facilities2,055,513Other expenses826,036$9,732,550

MMI's call center is staffed 12 hours per day with 60 call staff always available. Each staff member has a paid 10-minute break for each hour worked, and an unpaid 1-hour break for a lunch/dinner during each 12-hour shift. Thus, the call center has12,045,000 minutes (11 hr 50 min 60 staff 365 days) available for calls during the year.

AS and MMI work together to estimate the number of calls and time required for each call, based on AS's prior experience with its current call center.

InquiriesTotal Calls

AnsweredAverage

Number of

Minutes/CallTotal Time

(minutes)Inquire re: rates and termsAutos80,7006484,200Trucks32,7007228,900Inquire re: loan application statusAutos45,7005228,500Trucks6,8201175,020Inquire re: payment statusAutos39,7003119,100Trucks12,700450,800Inquire re: other mattersAutos29,70011326,700Trucks8,57015128,5501,641,770

Required:

1. Determine the amount that MMI should propose to charge AS for the coming year using TDABC, assuming MMI desiresa profit of 30% of incurred cost.

2. Suppose that AS wants the proposal broken down by type of loan (auto, truck). What would the proposal look like now?

total cost of engagement -------

the final cost after markup -----

the revised proposal would show:

cost for Autos ....................

cost for trucks ...............

total cost.......

time mark up .....

total charge for engagement .....