National Computer (a fictitious company) competes at the retail level on the basis of customer service. It has invested significant resources in its Customer Service Department. Recently, the company has installed a traditional activity-based costing (ABC) system to provide better-quality cost information for pricing, decision making, and customer-profitability analysis. Most of the costs of running the Customer Service Department are considered committed (i.e., short-term fixed) costs (principally, personnel and equipment costs). The budgeted cost for the upcoming period is $1 million. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information:

			Percentage of		Estimated (Budgeted)
	Activities		Employee Time		Cost-Driver Quantity
Handling Customer Orders			80%		8,000	customer orders
Processing Customer Complaints			10%		400	customer complaints
Conducting Customer Credit Checks			10%		500	credit checks
	Budgeted cost: Customer Service Department =				$1,000,000
Practical capacity levels:
Handling Customer Orders =				10,000
Processing Customer Complaints =				500
Customer Credit Checks =				500

Required

1. Based on the preceding information, calculate the activity-cost driver (ABC) rates for each of the three activities performed by the Customer Service Department. Assume that during the period actual cost-driver activity levels are exactly as planned. Under this situation, what is the total cost assigned to each of the three activities? For each activity, what is the cost of unused capacity?

2. Suppose that during the upcoming period, activities (i.e., cost-driver quantities) are exactly as budgeted. Suppose, too, that the practical capacity level for each of these activities is 10,000 customer orders, 500 customer complaints, and 500 credit checks. Using cost-driver rates based on practical capacity levels for each activity, what is the cost assigned to each of the three activities? Also, what is the unused capacity and the associated cost of unused capacity for each activity?

3. What actions might the management of National Computer take in response to the analysis conducted in response to (2) above?

4. What nonfinancial performance indicators do you recommend National Computer monitor in terms of its Customer Service Department? In general, how are these indicators chosen? (That is, how do you justify the items you arerecommending?)