Omni Insurance Group sells a variety of insurance products. The company’s auto insurance department employs 25 sales representatives, who communicate with customers exclusively through telephone. Assume the department’s only cost is personnel costs of $100,000 per month. Three types of activities are performed within the department: answering customer inquiries, processing sales of insurance, and handling customer claims. The estimated monthly quantities of work in the three activities are 6,000 inquiries, 2,000 sales, and 1,600 claims. According to a survey, employees spend 18 percent of their time on inquiries, 36 percent on sales, and 40 percent on handling claims. However, the managers of the company are concerned that part of the employees’ time is not used productively. After close observation of the employees’ daily work, the managers conclude that it takes 7 minutes to answer an inquiry, 30 minutes to process a sale, and 42 minutes to handle a claim.

Required:

1. Under traditional ABC, what is the cost of one unit of each activity?

2. If the practical capacity is 80 percent of theoretical capacity, and each employee works 8 hours a day and 22 days in a typical month, what is the cost per minute of supplying capacity?

3. Under the time-driven ABC approach, what are the cost driver rates for each activity?

4. If the actual quantities of the activities are the same as the expected quantities for the month, what are the total costs assigned to customers? What might this calculation reveal to management?