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A company sells two types of products. Basic and Deluxe. The company provides technical support for users of its products, at an expected cost of $250,000 per year. The company expects to process 10,000 customer service calls per year. During the current month, the company received 250 calls for customer service on its Basic model, and 750 calls for customer service on its Deluxe model. What is the total amount of technical support cost assigned to the Basic model this month using activity-based costing (ABC)?

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Answer:

Basic model is $6,250

Deluxe model is $18,750

Total of technical support cost for the month is $25,000

Explanation:

The starting point in solving this question would to compute the technical support cost per call before applying the unit cost to the two models as below

technical support cost  per call=$250,000/10000=$25 per call

Technical support cost for Basic model=$25*250=$6,250

technical support cost for deluxe model=$25*750=$18,750

The total cost of technical support cost for the month =$6250+$18750=$25,000

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