At New England Goods Inc., 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 |
New England Goods Inc. currently allocates call center support costs using a rate of 0.6% of sales revenue.
Required:
a. Compute the amount of call center support costs allocated to each product line under the current system.
b. Assume New England 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 New England 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. New England Goods 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.
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