Zenon Computer (a fictitious company) competes at the retail level on the basis of service. As such, the company has invested significant resources in its Customer Service Department. Recently, it has installed a traditional activity-based costing 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:

Requirements

1. Based on the above information, calculate the activity-cost driver (ABC) rates for each of the three activities performed by the Customer Service Department. What is the total cost assigned to each activity? Under the assumption that actual activity is exactly as budgeted, what is the total cost assigned to each activity? Under this method, what is the cost of unused capacity for each of the three activities?
2. Suppose that during the upcoming period activities (i.e., cost-driver quantities) are exactly as budgeted. Suppose, too, that the practical capacity level for each of these activities is as follows: 10,000 customer orders, 500 customer complaints, and 500 credit checks. Using the cost-driver rates based on practical capacity levels, what is the cost assigned to each of the three activities? Also, what is the unused capacity and associated cost of unused capacity for each activity?
3. What actions might the management of Zenon Computer take in response to the analysis conducted in response to (2) above?
4. What non-financial performance indicators do you recommend National 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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Data Percentage of Emplovee Time 75% 1090 1 5% Estimated (Budgeted) Cost-Driver Quantity Activities Handling Customer Orders Processing Customer Complaints Conducting Customer Credit Checks 8,000 customer orders 400 customer complaints 500 credit checks Budgeted cost Customer Service Department = $800,000 Practical capacity levels: Handling Customer Orders- Processing Customer Complaints- Customer Credit Checks- 10,000 500 500