Question

Process Activity Analysis The procurement process for Omni Wholesale Company includes a series of activities that transforms a materials requisition into a vendor check. The process begins with a request for materials. The requesting department prepares and sends a materials request form to the Purchasing Department. The Purchasing Department then places a request for a quote to vendors. Vendors prepare bids in response to the request for a quote. A vendor is selected based on the lowest bid.. A purchase order to the low-bid vendor is prepared. The vendor delivers the materials to the company, whereupon a receiving ticket is prepared. Payment to the vendor is authorized if the materials request form, receiving ticket, and vendor invoice are in agreement. These three documents fail to agree 50 % of the time, initiating effort to reconcile the differences. Once the three documents agree, a check is issued. The process can be diagrammed as follows: Requesting, Receiving Preparing Materials Request (M/R) Preparing and Delivering Vendor Check Matching MR, R/T and Vendor Invoice Preparing Purchase Order Preparing Receiving Ticket (RT) and Selecting Vendor Bids Correcting Recondiliation Differences An activity analysis indicated the following activity costs with this process: Preparing materials request $42,000 Requesting, receiving, and selecting vendor bids 162,000 Preparing purchase order 24,000 Preparing receiving ticket 36,000 Matching M/R, R/T, and invoice 54,000 Correcting reconciliation differences 222,000 Preparing and delivering vendor payment 60,000

Answer 1

a.Table Showing the percentage of Individual activity cost to total process cost
Omni Wholesale Company
Individual activity cost to the total process cost
Procurement Activities	Activity Cost($)	Percentage of Total Process Cost
Preparing Material Request	42,000	7%
Requesting,Receiving ang Selecting Vendors Bids	1,62,000	27%
Preparing Purchase Order	24,000	4%
Preparing receiving ticket	36,000	6%
Matching M/R,R/T,and Invoice	54,000	9%
Correcting Reconciliation Difference	2,22,000	37%
Preparing and Delivering Vendor Payment	60,000	10%
Total Process Activity Cost	6,00,000	100%
b.Average total process cost per vendor payment is $ 10 per vendor
c.Table Showing the improvements in the activity cost as a results of the changes proposed by Management
Omni Wholesale Company
Changes Activity Costs
Procurement Activities	Activity cost prior to improvement	Activity cost after improvement	Activity cost Saved
Preparing Material Request	42,000	42,000	0
Requesting,Receiving ang Selecting Vendors Bids	1,62,000	32,400	1,29,600
Preparing Purchase Order	24,000	24,000	0
Preparing receiving ticket	36,000	36,000	0
Matching M/R,R/T,and Invoice	54,000	54,000	0
Correcting Reconciliation Difference	2,22,000	66,600	1,55,400
Preparing and Delivering Vendor Payment	60,000	60,000	0
Total Process Activity Cost	6,00,000	3,15,000	285000
d.Average total process cost per vendor payment is $ 5.25 per vendor