Question

Aziz company sells two types of products, Baste and Deluxe . The company provides technical support for users of its products at an expected cost of $150,000 per year. The company expects to process 10,000 customer service calls per year.
Required:
1. Determine the company's cost of technical support per customer service call.
2. During the month of January Aziz received 520 calls for customer service on its deluxe model and 220 calls for customer service on its basic model. Assign technical support costs to each model using activity based costing (ABC).

Answer 1

Answer:

1.$25

2. Deluxe $13,000

Basic $5,500

Explanation:

1. Calculation to determine the company's cost of technical support per customer service call.

Using this formula

Cost of technical support per customer service call = Expected cost / Expected customer service call

Let plug in the formula

Cost of technical support per customer service call = $150,000 / 10,000

Cost of technical support per customer service call = $25 per customer service call

Therefore the company's cost of technical support per customer service call is $25 per customer service call

2. Calculation to Assign technical support costs to each model using activity based costing

Model Activity Rate (a) Cost driver quantity incurred (b) Allocated Cost (a*b)

Deluxe $25 *520calls = $13,000

Basic $25* 220 calls = $5,500

Therefore the technical support costs assign to each model using activity based costing (ABC) is:

Deluxe $13,000

Basic $5,500