Question

Saratoga Company manufactures jobs to customer specifications. The company is conducting a time driven activity-based costing study in its Purchasing Department to better understand how Purchasing Department labor costs are consumed by individual jobs. To aid the study, the company provided the following data regarding its Purchasing Department and three of its many jobs Number of employees Average salary per employee Veeks of employment per year Hours worked per week Practical capacity percentage 85 Requisition Processing Evaluation Bid Minutes per unit of the activity Inspection 45 Job X Job Y Job Z Number of requisitions processed Number of bid evaluations Number of inspections Now assume that Saratoga Company would like to answer the following "what if" question using its time-driven activity-based costing system: Assuming our estimated activity demands for all jobs in the next period will be as shown below, how will this affect our job costs and our staffing levels within the Purchasing Department? Requisition Processing 10.800 Bid Evaluation 13.700 Activity demands for all jobs Inspection 16.200

Answer 1

Required 1 :
1)	Here , salary of employee ( $ 24,500 ) is fixed and it is allocated between
	jobs based on time taken for performing the individual activities that
	necessary to complete the job .
	generally the cost per activity will go down , where more number of
	activities share the cost .
	so, total time in the practical capacity is 1,803,360 minutes
	( 17 employees * 52 weeks * 40 hours per week * 60 minutes per hour* 85 % )
	Hence from the above , total cost assigned to jobs X,Y,Z will go down
	due to revised demand
2)	Calculate the saratoga's used capacity in minutes :
	Requisition processing ( 10,800 units * 15 min per unit)	162,000 minutes
	Bid Evaluation (13,700 units * 45 min per unit )	616,500 minutes
	Inspection ( 16,200 units * 30 min per unit )	486,000 minutes
	Total Used capacity in minutes	1,264,500 minutes
3)	Calculate the saratoga's unused capacity in minutes :
	Total practical capacity in minutes	1,803,360 minutes
	( 17 employees * 52 weeks * 40 hours per week * 60 minutes per hour* 85 % )
	less: Total Used capacity in minutes ( see in required 2 )	(1,264,500 minutes )
	Total Unused capacity in minutes	538,860 minutes
4)	Calculate the saratoga's unused capacity in number of employees :
	Unused capacity in number of employees	5..08 employees ( rounded to 2 decimal )
	({538,860 minutes / (52 weeks * 40 hours per week* 60 minutes per hour *85%)}
	{538,860 / 106,080}
5)	Calculate the impact on expenses of matching capacity with demand :
	for practical capacity of 1,803,360 minutes , salary expense will impact on expense
	will be   is $ 292,046.10
	{( 17 employees * $ 24,500 )/ 1,803,360 * 1,264,500 }
	{ $ 416,500 / 1,803,360 * 1,264,500 }
	so, $ 292,046.10
	on the basis of number of employees :
	1,264,500 / (52 *40*60*85% ) Employees at $ 24,500 each
	1,264,500 / 106,080 * $ 24,500
	$ 292,046.10