Question: Washta Software develops and markets computer software for the agriculture industry. Because support costs are a large portion of the cost of software development, the

Washta 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 Washta, Vera Soren, is especially concerned with understanding the effects of support cost behavior. Soren has completed a preliminary activity analysis of one of Washta’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 65% of the basic cost. Data are shown for two recent customers:

Customer Mystical Plants $8,000 Todal Blooms S8,000 Basic cost of FertiMix Lines

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 Washta’s software products?

Customer Mystical Plants $8,000 Todal Blooms S8,000 Basic cost of FertiMix Lines of customized code Estimated cost per line of customized code 520 160 s 20 s 20

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