Question 1 Heartfelt Bank& T rust operates in a very competitive marketplace, using a traditional labor-hour- based system to determine the cost of processing its mortgage loans. Recently, the firm explored a switch to activity-based costing to determine the wisdom of its previous ways. The following information is available: Activity Driver Units Cost Driver Application processing 900,000 Applications 4,000 800,000 Underwriting hours 16,000 8,000 Loan underwriting Loan closure Total 880,000 Legal hours Two loan applications, among many others, were originated and closed during the year. No. 7439 consumed 3.5 hours in loan underwriting and 1.5 hours in loan closure, for a total of 5.0 hours.. No. 7809 also required 5.0 hours of time, subdivided as follows: 2.0 hours in loan underwriting and 3.0 hours in loan closure. Required: (a) Using activity-based-costing system determine the cost of processing, underwriting, and closing the two loan applications. (10 marks) (b) Conversations with management found that on average,each application jook nine labsr hours of processing time, excluding underwriting and closure. Determine the cost of processin the two loans if Heartfelt uses the traditional labor-hour-based system (8 marks) (c) Evaluate whether Heartfelt is making a mistake by continuing to use a traditional system that is based on an average labor cost per hour. (7 marks) Total: 25 marks)