Processing task it is estimated that 25 of the

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Unformatted text preview: an department are applicable to the processing of home-loan application. The following information is given concerning the processing of a loan application : © The Institute of Chartered Accountants of India 7.6 Advanced Management Accounting Direct professional labour : Rs. Loan processor monthly salary : 80,000 (4 employees @ Rs. 20,000 each) Loan department overhead costs (monthly) Chief loan officer’s salary 5,000 Telephone expenses 750 Depreciation Building 2,800 Legal advice 2,400 Advertising 400 Miscellaneous 650 Total overhead costs 12,000 You are required to compute the cost of processing home loan application on the assumption that one hundred home loan applications are processed each month. Solution: Statement showing computation of the cost of processing a typical home loan application Rs. Direct professional labour cost 80,000 (4 employees @ Rs.20,000 each) Service overhead cost (25% of Rs. 12,000) 3,000 Total processing cost per month 83,000 No. of applications processed per month 100 Total processing cost per home loan application 830 7.4.3 Customer Costing in service sector : The customer costing is a new approach to management. The central theme of this approach is customer satisfaction. In some service industries, such as public relations, the specific output of industry may be difficult to identify and even more difficult to quantify. Further, where there are multiple customers, identifying support activities i.e. common costs with particular customer may be more problematic. In such cases, it is important to cost customers. An analysis based on Activity Based Costing of customers profitability provides valuable information to help management in pricing customer. Consider a banking sector. A bank’s activities for customer will include the following types of activities. These are : © The Institute of Chartered Accountants of India Costing of Service Sector (i) Stopping a cheque (ii) 7.7 Withdrawal of cash (iii) Updation of pass book (iv) Issue of duplicate pass book (v) Returning a cheque because of insufficient funds (vi) Clearing of a customer cheque. Different customers or categories of customers use different amount of these activities and so customer profiles can be build up and customer can be charged according to the cost to serve them. For example (i) In Computer Institute the cost of providing a course for enrolled students may be determined by a variety of factors, such as type of course (Oracle or Java) and the level of course (introduction or advanced). (ii) A hotel may have activities that are provided for specific types of customers such as well laid gardens, swimming pool and a bar. Older guest may appreciate and use the garden, families the swimming pool and business guests the bar. If the activities are allocated to relevant guest a correct cost per bed occupied can be calculated for each type of category. For customer costing purpose, the costs are divided into following categories. These are: (i) Customer Specific...
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This document was uploaded on 09/24/2013.

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