Saratoga Company manufactures jobs to customer specifications. The company is conducting a time-driven activity-based costing study in its Purchasing Department to better understand how Purchasing Department labor costs are consumed by individual jobs. To aid the study, the company provided the following data regarding its Purchasing Department and three of its many jobs:
| Number of employees | 8 | ||||
| Average salary per employee | $ | 37,000 | |||
| Weeks of employment per year | 52 | ||||
| Hours worked per week | 40 | ||||
| Practical capacity percentage | 85 | % | |||
| Requisition Processing | Bid Evaluation | Inspection | |||
| Minutes per unit of the activity | 15 | 45 | 30 | ||
| Job X | Job Y | Job Z | |||
| Number of requisitions processed | 9 | 6 | 5 | ||
| Number of bid evaluations | 5 | 4 | 6 | ||
| Number of inspections | 8 | 4 | 8 | ||
Required:
1. Calculate the cost per minute of the resource supplied in the Purchasing Department.
2. Calculate the time-driven activity rate for each of Saratoga’s three activities.
3. Calculate the total purchasing labor costs assigned to Job X, Job Y, and Job Z.
Explanation
1.
| Number of employees (a) | 8 | |
| Average salary per employee (b) | $ | 37,000 |
| Total cost of resources supplied (a) × (b) | $ | 296,000 |
| Practical capacity per employee (in minutes) (a) | 106,080 | |
| Number of employees (b) | 8 | |
| Practical capacity of resources supplied (in minutes) (a) × (b) | 848,640 | |
| Cost per minute of the resource supplied (rounded) | $ | 0.35 |
2.
| Requisition Processing | Bid Evaluation | Inspection | ||||
| Minutes per unit of the activity (a) | 15 | 45 | 30 | |||
| Cost per minute of the resource supplied (b) | $ | 0.35 | $ | 0.35 | $ | 0.35 |
| Time-driven activity rate (a) × (b) | $ | 5.25 | $ | 15.75 | $ | 10.50 |
3.
| Job X | Job Y | Job Z | ||||
| Number of requisitions processed (a) | 9 | 6 | 5 | |||
| Time-driven activity rate (b) | $ | 5.25 | $ | 5.25 | $ | 5.25 |
| Requisition processing costs assigned (a) × (b) | $ | 47.25 | $ | 31.50 | $ | 26.25 |
| Number of bid evaluations (a) | 5 | 4 | 6 | |||
| Time-driven activity rate (b) | $ | 15.75 | $ | 15.75 | $ | 15.75 |
| Bid evalution costs assigned (a) × (b) | $ | 78.75 | $ | 63.00 | $ | 94.50 |
| Number of inspections (a) | 8 | 4 | 8 | |||
| Time-driven activity rate (b) | $ | 10.50 | $ | 10.50 | $ | 10.50 |
| Inspection costs assigned (a) × (b) | $ | 84.00 | $ | 42.00 | $ | 84.00 |
| Total purchasing labor costs assigned to jobs | $ | 210.00 | $ | 136.50 | $ | 204.75 |
Thanks
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