Determine the amount that mmi should propose to charge as

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Reference no: EM131911631

Problem

Market Makers Inc. (MMI) provides a range of services to its retail clients - customer services for inquiries, order taking, credit checking for new customers, and a variety of related services. Auto Supermarket (AS) is a large auto dealer that provides financing for the autos and trucks that it sells. AS has approached MMI to manage the inquiries that come in regarding these loans. AS is not satisfied with the performance of the call center it currently uses for handling inquiries on these loans and is considering a change to MMI.

MMI has been asked to estimate the cost of providing the service for the coming year. There are two types of loans at AS, one for autos and SUVs and another for light trucks. The loans for auto and truck buyers typically have different types of customers and loan terms, so the nature and volume of the inquiries are expected to differ. MMI would use its own call center to handle the AS engagement. The MMI call center's annual costs are as follows: Call center costs Salaries $4,223,555 Utilities 2,487,446 Leasing of facilities 1,985,513 Other expenses 819,036 $9,515,550 MMI's call center is staffed 12 hours per day with 60 call staff always available.

Each staff has a paid 10-minute break for each hour worked, and an unpaid 1-hour break for a lunch/dinner during their 12-hour shift. Thus, the call center has 12,045,000 minutes (11 hours × 50 min. × 60 staff × 365 days) available for calls during the year. AS and MMI work together to estimate the number of calls and time required for each call, based on AS's prior experience with its current call center.

Inquiries Total Calls Answered Average Number of Minutes/Call Total Time (minutes) Inquire re: rates and terms Autos 80,000 6 480,000 Trucks 32,000 7 224,000 Inquire re: loan application status Autos 45,000 5 225,000 Trucks 6,750 11 74,250 Inquire re: payment status Autos 39,000 3 117,000 Trucks 12,000 4 48,000 Inquire re: other matters Autos 29,000 11 319,000 Trucks 8,500 15 127,500 1,614,750.

Required

1. Determine the amount that MMI should propose to charge AS for the coming year using TDABC, assuming that MMI desired a profit of 25% of incurred cost.

Reference no: EM131911631

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