Richmond Software develops and markets computer software for the agriculture industry. Because support costs are a large portion of the cost of software development, the director of cost operations of Richmond, Leslie Paton, is especially concerned with understanding the effects of support cost behaviour.
Paton has completed a preliminary activity analysis of one of Richmond’s primary software products: FertiMix (software to manage fertilizer mixing). This product is a software template that is customized for specific customers, who are charged for the basic product plus customizing costs. The activity analysis is based on the number of customized lines of FertiMix code. Currently, support cost estimates are based on a fixed rate of 50 percent of the basic cost. Data are shown for two recent customers:

1. Compute the support cost of customizing FertiMix for each customer using each cost-estimating approach.

2. If the activity analysis is reliable, what are the pros and cons of adopting it for all Richmond’s software products?

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Customer Beautiful Blooms Greencity Plants Basic cost of FertiMix Lines of customized code Estimated cost per line of customized $13,000 $13,000 490 180 22 22 code