Bayview Manufacturing Company Has an Accounts Receivable Department That Performs

Essay

Bayview Manufacturing Company has an accounts receivable department that performs three activities within the department: processing customer credit applications, invoicing customers, and performing collection activities. During interviews, the employee survey reports that they spend 15 percent of their time processing credit applications, 55 percent of their time invoicing customers, and 30 percent of their time on collection activities. The accounts receivable department employs 10 associates for a total cost of $200,000. Assume each associate works 8 hours per day, 20 days per month, but an estimate of practical capacity is 80 percent. After close observation of the employee's daily work, managers conclude the following:

The estimated monthly quantities of work in the three activities are 500 credit applications, 18,000 invoices, and 900 collection calls.
Required:
1. Under a traditional ABC system, what is the cost of one unit of activity?
2. Assuming the practical capacity information, what is the cost per minute of supplying capacity?
3. Under time-driven ABC, what are the cost driver rates for each activity?