Question

Market Makers Inc. (MMI) provides a range of services to its retail clients—customer service 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	$	4,293,555
Utilities		2,557,446
Leasing of facilities		2,055,513
Other expenses		826,036
	$	9,732,550

MMI’s call center is staffed 12 hours per day with 60 call staff always available. Each staff member has a paid 10-minute break for each hour worked, and an unpaid 1-hour break for a lunch/dinner during each 12-hour shift. Thus, the call center has 12,045,000 minutes (11 hr × 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		80,700				6				484,200
Trucks		32,700				7				228,900
Inquire re: loan application status
Autos		45,700				5				228,500
Trucks		6,820				11				75,020
Inquire re: payment status
Autos		39,700				3				119,100
Trucks		12,700				4				50,800
Inquire re: other matters
Autos		29,700				11				326,700
Trucks		8,570				15				128,550
										1,641,770

Required:

1. Determine the amount that MMI should propose to charge AS for the coming year using TDABC, assuming MMI desires a profit of 30% of incurred cost.

2. Suppose that AS wants the proposal broken down by type of loan (auto, truck). What would the proposal look like now?

Answer 1

Market Makers Inc. (MMI) provides a range of services to its retail clients—customer service 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	$	4,293,555
Utilities		2,557,446
Leasing of facilities		2,055,513
Other expenses		826,036
	$	9,732,550

MMI’s call center is staffed 12 hours per day with 60 call staff always available. Each staff member has a paid 10-minute break for each hour worked, and an unpaid 1-hour break for a lunch/dinner during each 12-hour shift. Thus, the call center has 12,045,000 minutes (11 hr × 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		80,700				6				484,200
Trucks		32,700				7				228,900
Inquire re: loan application status
Autos		45,700				5				228,500
Trucks		6,820				11				75,020
Inquire re: payment status
Autos		39,700				3				119,100
Trucks		12,700				4				50,800
Inquire re: other matters
Autos		29,700				11				326,700
Trucks		8,570				15				128,550
										1,641,770