Author Question: At Deutschland Electronics, product lines are charged for call center support costs based on sales ... (Read 108 times)

mcmcdaniel · **on:** Jul 5, 2018

At Deutschland Electronics, product lines are charged for call center support costs based on sales revenue. Last year's summary of call center operations revealed the following:

Surveillance Products Specialty Products
Number of calls for information 1,000 4,000
Average call length for information 3 minutes 8 minutes
Number of calls for warranties 300 1,200
Average call length for warranties 7 minutes 15 minutes
Sales revenue 8,000,000 5,000,000

Deutschland Electronics currently allocates call center support costs using a rate of 0.5 of sales revenue.

Required:
a. Compute the amount of call center support costs allocated to each product line under the current system.
b. Assume Deutschland decides to use the average call length for information to assign last year's support costs. Does this allocation method seem more appropriate than percentage of sales? Why or why not?
c. Assume Deutschland decides to use the numbers of calls for information and for warranties to assign last year's support costs of 65,000. Compute the amount of call center support costs assigned to each product line under this revised ABC system.
d. Deutschland Electronics assigns bonuses based on departmental profits. How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information?
e. Discuss the barriers for implementing ABC for this call center.

Question 2

The standard T account includes all of the following EXCEPT
a. a credit side.
b. a debit side.
c. a title.
d. the current date.

Moriaki · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

Answer:
a. Call center support costs allocated to surveillance products is 40,000 = 0.005 8,000,000 and to specialty products is 25,000 = 0.005 5,000,000.
b. Yes, average call length appears to be a more appropriate allocation method because it allocates more support costs to specialty products, which consume a greater portion of the call center's resources.
c. 65,000 of support costs / 6,500 total calls (Surveillance 1,000 + 300 + Specialty 4,000 + 1,200) = 10 per call. Call center support costs allocated to surveillance products is 13,000 = 1,300 calls 10 per call, and to specialty products is 52,000 = 5,200 calls 10 per call.
d. To increase profits, Specialty Product managers would want less cost allocated to their departments. Therefore, if support cost allocation were based on length of call, Specialty Products management may emphasize keeping calls for their department short and to the point, rather than emphasizing understanding and helping the caller.
e. Poor model design or poor analytical interpretation and accountability consequences may function as barriers to using ABC assignments for the call center activities. It is also important to recognize that the call volumes from this year may be an anomaly so that in an average year, the current allocation rate on sales may not be as distortive as it appears for this year.

Answer to Question 2

d