Question

Thompson Manufacturing Company has three salaried clerks to process purchase orders. Each clerk is paid a salary of $28,000 and is capable of processing 5,000 purchase orders per year (working efficiently). In addition to the salaries, Thompson spends $7,500 per year for forms, postage, etc. Thompson assumes 15,000 purchase orders will be processed. During the year, 12,500 orders were processed. "Customer 001" acquired 112.000 units during the year, the average size of his orders was 2.800 units: whereas Customer 165" acquired 7 units in a single transaction with the Company. Required: 1. Calculate the activity rate for the purchase order activity. Break the activity into fixed and variable components. 2. Compute the total activity availability, and break this into activity output and unused activity. 3. Calculate the total cost of the resource supplied, and break this into the cost of activity output and the cost of unused activity. 4. Assign the cost of purchase order activity to the two customers. How much is the cost per unit for each of them? 5. Measure the difference in complexity" between the two customers.

Answer 1

1. Total activity cost = ($28000 x 3) + $7500 = $84000 + $7500 = $91500

Activity rate for purchase order activity = Total activity cost/Activity cost driver = $91500/15000 = $6.10 per purchase order

Fixed component: $84000/15000 = $5.60 per purchase order

Variable component: $7500/15000 = 0.50 per purchase order

2. Total activity available = 5000 x 3 = 15000 purchase orders

Activity output = 12500 purchase orders

Unused activity = 15000 - 12500 = 2500 purchase orders

3. Total cost of the resource supplied = $91500

Cost of activity output = $91500 x 12500/15000 = $76250

Cost of unused activity = $91500 x 2500/15000 = $15250

4.

	Customer 001	Customer 165
Number of purchase orders (112000/2800)	40	1
x Activity rate	$                6.10	$                6.10
Cost of purchase order activity $	244	6.1
Number of units purchased	112000	7
Cost per unit $	$           0.0022	$           0.8714

Kindly round off the cost per unit as required since no instructions have been provided with the question regarding rounding off.

Per HOMEWORKLIB RULES the first 4 parts have been answered. Please post the remaining separately. Thank you.