At Deutschland Electronics,product Lines Are Charged for Call Center Support

question 136

Essay

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:
$\begin{array}{lrr}&\text { Surveillance Products }& \text { Specialty Products }\\\text { Number of calls for information } & 1,000 & 4,000 \\\text { Average call length for information } & 3 \text { minutes } & 8 \text { minutes } \\\text { Number of calls for warranties } & 300 & 1,200 \\\text { Average call length for warranties } & 7 \text { minutes } & 15 \text { minutes } \\\text { Sales revenue } & \$ 8,000,000 & \$ 5,000,000\end{array}$ 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.

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Definitions:

Ending Inventory

The total value of goods available for sale at the end of an accounting period.

Budget Process

The systematic method by which an organization allocates its financial resources and plans its expenditures for a future period.

Finished Goods Inventory

Products that have completed the manufacturing process but have not yet been sold or distributed.

Direct Labour

Workforce directly involved in manufacturing goods or providing services, whose costs are directly attributed to products or services.