Question

The manager of the Personnel Department at City Enterprises has been reading about time-driven ABC and wants to apply it to her department. She has identified four basic activities her employees spend most of the their time on: Interviewing, Hiring, Assessment, and Separation Processing. The department employs 13 staff who perform these activities. The manager provides the following estimates for the amount of time it takes to complete each of these activities:

• Interviewing: 53 minutes.

• Hiring: 68 minutes.

• Assessment: 91 minutes.

• Separation Processing: 98 minutes.

Employees in Personnel work 43-hour weeks with four weeks for vacation. Of the 43 hours, five are reserved for administrative tasks, training, and so on. The costs of the Personnel Department, including any allocated costs from other staff functions, are $980,000. During the year, Personnel conducted 2,000 interviews, made 535 hires, made 4,600 assessments, and had 290 separations.

Required:

a. What is the cost per minute for activities in Personnel? (Round your answer to 2 decimal places.)

b. What is the cost of interviewing and hiring one employee? (Round your intermediate calculations and final answer to 2 decimal places.)

c. How many minutes of unused capacity did Personnel have for the year?

d. What was the cost of the unused capacity in Personnel? (Round your intermediate calculations to 2 decimal places and round your final answer to the nearest whole dollar.)

Answer 1

SOLUTION

Activity	Time required	Total
Interviewing	53 minutes * 2,000 interviews	106,000
Hiring	68 minutes * 535 hires	36,380
Assessment	91 minutes * 4,600 assessments	418,600
Separation Processing	98 minutes * 290 separations	28,420
		589,400

Number of minutes available in a year for personnel department = 13 employees *48 weeks *(43-5) hours per week *60 minutes per hour

= 13 employees *48 weeks *38 hours per week *60 minutes per hour

= 1,422,720

A. Cost per minute for activities in Personnel = 980,000 / 1,422,720 = 0.69 per minute

B. Cost of interviewing employee = 53 minutes * 0.69 = $36.57

Cost of hiring employee = 68 minutes * 0.69 = $46.92

C. Unused capacity in minutes = 1,422,720 - 589,400 = 833,320

D. Cost of the unused capacity in Personnel = 833,320 * 0.69 = 574,991