Question
Zenon Computer (a fictitious company) competes at the retail level on the basis of customer service. It has invested significant resources in its customer service
Zenon Computer (a fictitious company) competes at the retail level on the basis of customer service. It has invested significant resources in its customer service department. Recently, the company has installed a traditional activity-based costing (ABC) system to provide better-quality cost information for pricing, decision making, and customer-profitability analysis. Most of the costs of running the customer service department are considered committed (i.e., short-term fixed) costs (principally, personnel and equipment costs). The budgeted cost for the upcoming period is $800,000. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information:
Activities | % of Employee Time | Estimated (Budgeted) Cost-Driver Quantity |
Handling customer orders | 75% | 8,000 customer orders |
Processing customer complaints | 10% | 400 customer complaints |
Conducting customer credit checks | 15% | 500 credit checks |
What nonfinancial performance indicators do you recommend Zenon Computer monitor in terms of its customer service department? In general, how are these indicators chosen? (That is, how do you justify the items you are recommending?)
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