Question

Lylewood Data Solutions provides data processing services to small businesses in the Northeast. For years, the company has allocated the cost of the data storage department using the number of tape mounts (how many times a data tape is loaded onto the computer's tape drive). This rate was tied closely to direct labor usage, since the more tapes that were mounted, the more operators that were needed to mount them. Under the current system, a customer is charged $1.25 each time a tape is mounted.
Three months ago the company implemented a new data storage system that uses an automated tape library. As a result, operators are no longer needed to mount the tapes.
Some data that is used only temporarily is stored on a computer disk and never transferred to tape. With the new system, the department's payroll has dropped from 20 operators to 3.
Debbie Lewis, manager of the data center, believes that the new system's costs are more the result of data storage than of number of tape mounts. She has gathered the following information on the operation of the storage system, which is expected to cost
$284,015 per year to operate.


Required
a. Calculate the activity cost rate for the data storage department using the number of tape mounts as the activity driver. Using this rate, determine the data storage costs that should be allocated to each customer.
b. Calculate the activity cost rate for the data storage department using gigabytes of data storage as the activity driver. Using this rate, determine the data storage costs that should be allocated to each customer.
c. Which activity measure will customers prefer? Why?
d. Is the number of tape mounts still a good cost driver for the data storage department? Why or whynot?


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  • CreatedFebruary 21, 2014
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