Question

Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is $1,100 per year. In addition to the salaries, Elliott spends $27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Which of the resources associated with purchasing can be classified as flexible resources? Forms, Postage and Supplies Which of the resources associated with purchasing can be classified as committed resources? PC system and clerks 2. Compute the total activity availability, and break this into activity usage and unused activity. Activity availability: 26,000 purchase orders Activity usage: Unused activity: 25,350 650 purchase orders purchase orders 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. If required, round your intermediate calculations to three decimal places. Activity cost: $ 134,271 Cost of activity used: 0 Cost of unused activity: 0

Answer 1

3.

Cost of activity used = Activity cost x Activity usage/Activity availability

= 134,271 x 25,350/26,000

= $130,914

Cost of unused activity = Activity cost x unused activity/Activity availability

= 134,271 x 650/26,000

= $3,357

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