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 20 Average salary per employee $ 25,000 Weeks of employment per year 52 Hours worked per week 40 Practical capacity percentage 85 % Requisition Processing Bid Evaluation Inspection Minutes per unit of the activity 15 45 30 Job X Job Y Job Z Number of requisitions processed 8 5 4 Number of bid evaluations 4 3 5 Number of inspections 7 3 7 Required: 1. Calculate the cost per minute of the resource supplied in the Purchasing Department. 2. Calculate the time-driven activity rate for each of Saratoga’s three activities. 3. Calculate the total purchasing labor costs assigned to Job X, Job Y, and Job Z.

Answer 1

Ans:

1. Calculation of Cost Per Minute:

Average Salary: $25,000 (assumed given annually)

Total Working Minutes per employee: Working weeks* Weekly Hours*60*Practical Capacity

: 52*40*60*85% = 106,800

Average cost per minute: 25,000/106,800 = $0.23 per minute.

2.  Calculation of time driven activity rate for 20 Employees:

Time Taken for each activity:

Requisition Processing: 15 minutes

Bid Evaluation : 45 minutes

Inspection : 30 Minutes

Particulars	Job X	Time (in Minutes)	Job Y	Time(in minutes)	Job Z	Time( in minutes)	Time Driven Activity Rate (Total Minutes*Cost per minute*20)
Number of Requisition Processing	8	120	5	75	4	60	$897
Number of Bid Evaluation	4	180	3	135	5	225	$2,484
Number of Inspection	7	210	3	90	7	210	$2,346
Total Time By each Job		510		300		495

3. Calculation of total purchasing labor cost assigned to each Job for 20 employees:

Time Taken for each activity:

Requisition Processing: 15 minutes

Bid Evaluation : 45 minutes

Inspection : 30 Minutes

Particulars	Job X	Job Y	Job Z
Total time taken by each job from 2. above (In minutes)	510	300	495
Cost for each Job (Time Taken* Cost per minute*20)	$2,346	$1,380	$2,277