Question

Aziz Company sells two types of products, Basic and Deluxe. The company provides technical support for users of its products, at an expected cost of $250,000 per year. The company expects to process 10,000 customer service calls per year.

Required

1. Determine the company's cost of technical support per customer service call.

2. During the month of January, Aziz received 550 calls for customer service on its Deluxe model, and 250 calls for customer service on its Basic model. Assign technical support costs to each model using activity-based costing (ABC).

Answer 1

a. $25

b. Deluxe model = $13,750

Basic model = $6,250

Step-by-step explanation:

The computations are shown below:

a. The company's cost of technical support per customer service call would be

= Expected cost of technical support ÷ customer service calls per year

= $250,000 ÷ 10,000

= $25

b. The technical support costs allocated to each model is shown below:

For deluxe model:

= 550 calls × $25

= $13,750

For basic model:

= 250 calls × $25

= $6,250

Total would be

= $13,750 + $6,250

= $20,000