Refer to the billing department illustration. Suppose that management at BT’s York area customer care center is implementing an ABC system. The center has 98,000 residential customers and 25,000 commercial customers. An ABC team has collected the data shown in Exhibit 4.14. Management has decided not to allocate the other resource costs.

Exhibit 4.14

1. Using the same format as Exhibits 4.12 and 4.13, prepare schedules to determine the cost per driver unit for each activity and the activity-based cost per account for each customer type.

Exhibit 4.12

Exhibit 4.13

2. Consider the verification activity. Suppose the cost per account verified is ₤0.45. The center verifies 50 per cent of residential and commercial bills. Given that there are, on average, 50 lines on each commercial bill and only 12 lines on each residential bill, criticize the use of accounts verified as a cost driver and suggest a more plausible and reliable cost driver.

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Resource Supervisors Account inquiry labour Billing labour Paper Computers Telecommunications Occupancy Printers Other Total Activity Billing Account inquiry Correspondence Verification Monthly cost £30,500 102,000 45,000 5,800 143,000 49,620 56,000 75,000 59,000 £565,920 Cost driver Lines Inquiries Letters Accounts verified Billing 40% 70 100 30 15 Percentage of resource used in activity Account inquiry 35% 85 48 85 70 80 Correspondence Verification 8% Residential 1,176,000 9,800 1,960 49,000 15 7 5 30 10 Monthly number of cost driver Units Commercial 1,250,000 7,500 2,500 12,500 Other 17% 5 15 15 15 100 Total 2,426,000 17,300 4,460 61,500