Fairfield Mortgage Company is a full-service residential mortgage company in the Atlanta area that operates in a very competitive market. The CEO, Richard Sissom, is concerned about operating costs associated with processing mortgage applications and has decided to install an ABC costing system to help him get a handle on costs. Although labor hours seem to be the primary driver of the cost of processing a new mortgage, the labor cost for the different activities involved in processing new loans varies widely. The Accounting Department has provided the following data for the company's five major cost pools for 2014:

Activity Cost Pools

Taking customer applications	$300,000
Conducting credit investigations	500,000
Underwriting	525,000
Preparing loan packages	250,000
Closing loans	600,000
	$2,175,000

Activity Drivers

Time - assistant managers	13,000 hours
Time - credit managers	16,500 hours
Time - Underwriting Department	9,000 hours
Time - Processing Department	8,000 hours
Time - Legal Department hours	6,000 hours
	52,500 hours

During 2014, the company processed and issued 5,000 new mortgages, two of which are summarized here with regard to activities used to process the mortgages.

	Loan 5066	Loan 5429
Application processing hours	1.50	2.75
Credit investigating hours	4.00	3.00
Underwriting hours	2.50	4.75
Processing hours	3.50	3.00
Legal processing hours	1.50	1.50
Total Hours	13.00	15.00

Required

1. Determine the cost per unit for each activity cost pool

2. Determine the cost of processing loans 5066 and 5429

3. Determine the cost of preparing loans 5066 and 5429 assuming that an average cost per hour for all activities is used

4. Compare and discuss your answers to requirements 2 and 3.

Answer rating: 100% (QA)

1 the cost per unit of activity for each activity cost pool Taking applications Taking applications cost assistant manager time in hours 300000 13000 ... View the full answer