is tn prevendon cost pius failure cost. 16. LO.2 (Benc hmarking) The call center
ID: 2578578 • Letter: I
Question
is tn prevendon cost pius failure cost. 16. LO.2 (Benc hmarking) The call center of Wobegon Electric Company handles 1.2 mil on calls per ycar. The average call requires six minutes of operator time, and 40 per cent of the calls require a supervisor to be involved for at least half of the call time. Operators are paid $9 per hour, and supervisors are paid $15 per hour. After Wobegon Electric engaged in process benchmarking, call times were reduced by one minute, and the number of supervisor-involved calls were reduced by 15 percent. The benchmark ing study cost Wobegon Electric Company $200,000. a. What was Wobegon Electric's total labor cost and labor cost per call ar the call cen- b. What was Wobegon Electric's total labor cost and labor cost per call at the call cen- ter prior to benchmarking? ter after benchmarking? (Round up to the nearest penny.) c. If the new results are expected to continue for three years, was engaging in the benchmarking study profitable to Wobegon Electric Company? Show calculations.Explanation / Answer
Answer for a
Calculation of Total Labor cost for the year & Labor cost per call ( Prior to benchmarking )
No. of Calls handled for the year - 1,200,000
Average minutes require per call - 6 mins
Total minutes handled for the year
= ( No. of Calls handled for the year X Average minutes require per call )
= ( 1,200,000 X 6 mins )
= 7,200,000 mins
Total hours taking to handle calls for the year
= ( Total minutes handled for the year / Minutes per hour )
= ( 7,200,000 / 60 mins )
= 120,000 hours
Supervisors Handling calls in hours for the year
= ( Total hours taking to handle calls for the year X % of Supervisiors handlings calls X Supervisors spent time )
= 120,000 hours X 40 % X ( 1 / 2 of the time )
= 24,000 hours
Operators Handling calls in hours for the year
= Total hours taking to handle calls for the year - Supervisors Handling calls in hours for the year
= 120,000 hours - 24,000 hours
= 96,000 hours
Total Labor cost for the year
= ( Operators Handling calls in hours for the year X Paid to Operator per hour ) +
( Supervisors Handling calls in hours for the year X Paid to Supervisors per hour )
= ( 96,000 hours X $ 9.00 ) + ( 24,000 hours X $ 15.00 )
= $ 864,000 + $ 360,000
= $ 1,224,000
Labor cost per call
= Total Labor cost for the year / No. of Calls handled for the year
= $ 1,224,000 / 1,200,000
= $ 1.02 per call
Answer for b
Calculation of Total Labor cost for the year & Labor cost per call ( After benchmarking )
No. of Calls handled for the year - 1,200,000
Average minutes require per call - 5 mins
Supervisors Handling calls for the year ( Prior to benchmarking )
= No. of Calls handled for the year X % of handling calls
= 1,200,000 X 40 %
= 480,000 calls
Reduction in Supervisors Handling calls for the year ( If Benchmarking used )
= Supervisors Handling calls for the year X % of reduction in Supervisors calls
= 480,000 X 15 %
= 72,000 calls
Supervisors Handling calls for the year ( After benchmarking )
= Supervisors Handling calls for the year ( Prior to benchmarking ) - Reduction in Supervisors Handling calls for the year ( If Benchmarking used )
= 480,000 calls - 72,000 calls
= 408,000 calls
Total minutes handled for the year
= ( No. of Calls handled for the year X Average minutes require per call )
= ( 1,200,000 X 5 mins )
= 6,000,000 mins
Total hours taking to handle calls for the year
= ( Total minutes handled for the year / Minutes per hour )
= ( 6,000,000 / 60 mins )
= 100,000 hours
Supervisors Handling calls in hours for the year ( After benchmarking )
= Supervisors Handling calls for the year ( After benchmarking ) X Supervisors spent time X Minutes per call
= 408,000 calls X ( 1 / 2 ) of the time X 5 mins
= 1,020,000 mins or 17,000 hours
Operators Handling calls in hours for the year
= Total hours taking to handle calls for the year - Supervisors Handling calls in hours for the year
= 100,000 hours - 17,000 hours
= 83,000 hours
Total Labor cost for the year ( after benchmarking )
= ( Operators Handling calls in hours for the year X Paid to Operator per hour ) +
( Supervisors Handling calls in hours for the year X Paid to Supervisors per hour )
= ( 83,000 hours X $ 9.00 ) + ( 17,000 hours X $ 15.00 )
= $ 747,000 + $ 255,000
= $ 1,002,000
Labor cost per call ( after benchmarking)
= Total Labor cost for the year / No. of Calls handled for the year
= $ 1,002,000 / 1,200,000
= $ 0.835 per call or $ 0.84 per call
Answer for c
Surplus from benchmarking for year
= Total Labor cost to company (prior to bench marking ) - Total Labor cost to company (after bench marking )
= $ 1,224,000 - $ 1,002,000
= $ 222,000
Profitability of the company of for 3 year
= ( Surplus from benchmarking for the year X 3 year ) - benchmarking cost
= ( $ 222,000 X 3 ) - $ 200,000
= $ 666,000 - $ 200,000
= $ 466,000
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