Zen Ltd provides insurance. D section offers a specialist insurance policy for delivery staff employed by a national distribution company. A new computer system has allowed the company to collect data regarding the nature and length of each call received by its customer support team. The total cost of call centre staff was £975,000 last year and 125,000 hours of calls were recorded. Data regarding the calls are as follows:

Last year, 78,000 policies were provided by D section of Zen Ltd at an average price of L50. Of these, 6,000 policies were successfully claimed on, with an average claim value of L300. As well as the direct staff costs, Zen Ltd issue D section with a head office recharge of L750,000 for company overheads. In the past, the call centre staff costs were allocated on a cost-per-policy basis. However with the new information, Zen Ltd wants to use activity-based costing to gain a clearer understanding of what activities are costing the most and therefore what savings can be made within D section.

Required

1. What is the call centre staff cost per policy using the old basis of allocation?

2. What is the profit for D section?

3. What is the average time per call for D section?

4. Which type of activity takes the longest time per call?

5. Calculate the call centre staff cost per hour and the phone calls cost per hour.

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Activities Policy renewal New policy Initial claims processing Further claims processing Customer queries Customer complaints Number of calls 45,000 33,000 6,000 28,000 54,000 21,500 187,500 Time (hours) 22,500 31,250 5,000 40,000 20,000 6,250 125,000