Reference no: EM131772499

Question - ABC Costing for a Service Organization

First Mortgage Company is a full-service residential mortgage company in the Baltimore area that operates in a very competitive market. The manager, Richard Sissom, is concerned about operating costs associated with processing mortgage applications and haas decided to install an ABC costing system to help him get a handle on costs. Although labor hours seems 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 2009.

Activity Cost Pools			Activity Drivers
Taking Customer Applications	$300,000		Time-Assistant Managers	12,000 hours
Conducting credit investigations	450,000		Time-Credit Managers	16,500 hours
Underwriting	500,000		Time-Underwriting Department	10,000 hours
Preparing loan packages	200,000		Time-Processing Department	10,000 hours
Closing loans	600,000		Time-Legal Department hours	6,000 hours
	$2,050,000			54,500 hours

During 2009, the company processed and issued 5,000 new mortgages, two of which are summarized here with regard to activites used to process the mortgages.

	Loan 5066	Loan 5429
Application processing hours	1.5	2.75
Credit investigating hours	4	3
Underwriting hours	2.5	4.75
Processing hours	3.5	3
Legal processing hours	1.5	1.5
Total Hours	13	15

Question:

a) Determine the cost per unit of activity for each activity cost pool.

b) Determine the cost of processing loans 5066 and 5429.

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