P5-6B

ABC Costing for a Service Organization Fairfield Mortgage Company is a full-service residential LO2 P5-6B. tgage company in the Atlanta area that operates in a very competitive market. The CEO, Richard Sissom, 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 2016: is concerned about operating costs associated with processing mortgage applications and has SERVICE AND MERCHANDISING Activity Cost Pools Activity Drivers Taking customer applications Conducting credit investigations $ 300,000 Time-assistant managers...... 12,000 hours 450,000 Time-credit managers 16,500 hours 525,000 Time-Underwriting Department... 10,000 hours 200,000 Time-Processing Department 8,000 hours 600,000 Time-Legal Department hours.... 6,000 hours 52,500 hours $2,075,000 During 2016, the company processed and issued S here with regard to activities used to process the mortgages: ,000 new mortgages, two of which are summarized Loan 5066 Loan 5429 1.50 4.00 2.50 3.50 1.50 13.00 2.75 3.00 4.75 3.00 1.50 5.00 Application processing hours. Credit investigating hours Legal processing hours