Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 18

TDABC; Continuation of Problem 5-64

Suppose that in addition to the call center engagement outlined above, AS also provides the following annual service to 10 other clients:

	Total Calls	Average Number of
	Answered	Minutes/Call
Platinum Regional Bank	234,000	6.0
Healthwise Software Inc	66,788	5.0
Johnson Manufacturing	122,665	4.0
Lesco Online Shopping	233,756	6.0
Babcock Insurance Service	55,455	5.5
Garcia Electric Supply and Service	38,956	3.4
Gilbert’s Online Garden Supplies	145,902	4.0
Financial Planning Services Inc	68,993	11.0
Porter’s Camera and Optical	198,440	6.0

Required

1. What is the unused capacity at MSI, not assuming that AS becomes a customer? What are the implications for the operating and marketing strategies at AS?

2. Assume that AS comes back to MSI with a revised proposal. The revised proposal includes call center activity as described in problem 5-64, but in addition, AS wants MSI to provide error-checking services for those who apply for loans at AS. MSI would use some of the call center staff, after appropriate training, to complete the processing of the credit checks. AS expects the following service to be needed:

Processing Credit Checks	Requests	Min./request
Auto	45,600	10
Truck	12,500	18

What would be the unused capacity with the revised proposal? What would be the cost of the unused capacity?

Step 1 of 2

1.

The amount of unused capacity is determined as follows.

The 2,545,579 minutes of unused capacity is relatively large (21% of total capacity) and has important implications for MSI’s operating and marketing strategy. First, it indicates the importance of getting the AS engagement, which would reduce unused capacity to 9%, a substantial improvement. Also, it points to the need to examine staffing levels to bring down the cost of unused capacity. Alternatively, MSI can use the unused time to provide staff training in order to improve their performance and to make MSI’s services more attractive to other potential clients.