Question

Activity Availability, Capacity Used, Unused Capacity

Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid $64,000 per year and is able to process 8,000 purchase orders. Last year, 35,600 purchase orders were processed by the five agents.

Required:

1. Calculate the activity rate per purchase order.

$ per purchase order

2. Calculate, in terms of purchase orders, the:

a. Total activity availability purchase orders

b. Unused capacity purchase orders

3. Calculate the dollar cost of:

a. Total activity availability $

b. Unused capacity $

4. Express total activity availability in terms of activity capacity used and unused capacity. Express the formula in terms of EITHER dollars OR purchase orders.

Total activity availability Activity capacity used Unused capacity

= +

5. What if one of the purchasing agents agreed to work half time for $32,000?

a. How many purchase orders could be processed by four and a half purchasing agents?

purchase orders

b. What would unused capacity be in purchase orders?

purchase orders

Answer 1

Information Given -

• Amount paid to each agent = $64000 per year.
• Number of agents staffed = 5.
• Number of orders processed by each agent = 8000 Purchase orders.
• Total yearly orders processed by all agents = 35600 Purchase orders.

.

(1) -- Calculate the activity rate per purchase order.

Answer -

	Particulars	Explanation
I.	Amount paid to each agent	Given in question	$64000
II.	Number of orders processed by each agent	Given in question	8000 Purchase orders
Activity rate per purchase order		(I / II) = $64000 / 8000	$8 per Purchase order

.

(2) -- Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity.

Answer -

No.	Particulars	Explanation
a.	Total activity availability	8000 Purchase orders * 5 agents	40000 Purchase orders
b.	Unused capacity	Total activity availability - Total yearly orders processed by all agents = 40000 Purchase orders - 35600 Purchase orders	4400 Purchase orders

.

(3) -- Calculate the dollar cost of: a. total activity availability b. unused capacity.

Answer -

No.	Particulars	Explanation	Amount
a.	Total activity availability	40000 Purchase orders * $8 per purchase order	$320000
b.	Unused capacity	4400 Purchase orders * $8 per purchase order	$35200

.

(4) -- Express total activity availability in terms of activity capacity used and unused capacity.

Answer -

Total activity availability = Activity capacity used + Unused capacity

= 35600 Purchase orders + 4400 Purchase orders

= 40000 Purchase orders

.

(5) -- What if one of the purchasing agents agreed to work half time for $32000?

Answer -

No.	Particulars	Explanation
a.	Purchase orders could be processed by four and a half purchasing agents	4.5 Purchasing agents * 8000 purchase orders	36000 Purchase orders
b.	Unused capacity in purchase orders	36000 Purchase orders - 35600 Purchase orders	400 Purchase orders