Question

Exercise 7A-1 Time-Driven Activity-Based Costing @LO 7-6 Saratoga Company manufactures jobs to customer specifications. The company is conducting a time-driven activity-based costing Page 351 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 12 Average salary per employee $28,000 Weeks of employment per year 52 Hours worked per week 40 Practical capacity percentage 85% Requisition Bid Processing 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 3 2 4 Number of inspections 6 2 6 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

1 21) Calculation of Cost per minute of the resource supplied in the Purchasing Department. 3 4 No. of Employees = 12 5 Average Salary per Employee = 28000 $ (Assume salary is for the year as nothing is given) 6 7 So total salary for the year is 12*28000$ = 3,36,000$ 8 9 Calculation of total practical minutes 10 11 Employees = 12 12 Weeks = 52 13 Hours worked per weeks = 40 hours 14 Practical capacity = 85% 15 16 Total practical minutes= 12 Employees * 52 Weeks * 40 Hours * 60 (Minutes in one hours) * 85% 17 18 Total Practical Minutes = 1,272,960 19 20 Cost per minute = Total cost of salary / Total practical minutes 21 = 3,36,000 $/ 1,272,960 Minutes 22 23 24 25 = 0.264$ per minutes

5 6 2) Calculate the time-driven activity rate for each of Saratoga's three activities. -7 8 Requisition Processing = 15 Minutes 9 o so, Time-driven activity rate for Requisition Processing is 15 Minutes * 0.264 $ = 3.96 $ or 4 1 2 Bid Evaluation = 45 Minutes 3 4 So, Time-driven activity rate for Bid Evaluation is 45 Minutes * 0.264 $ = 11.88 $ 5 6 Inspection = 30 Minutes 7 8 So, Time-driven activity rate for Bid Evaluation is 30 Minutes * 0.264 $ = 7.92 $ or 8 9

39 40 3) Calculate the total purchasing labor costs assigned to Job X, Job Y, and Job Z 41 42 Labour cost in Job X = (Number of requisitions processed in Job X* Time-driven activity rate for requisitions processed) + (Number of bid evaluations done in Job x * Time-driven activity rate for bid evaluations) +(Number of inspections done in Job x * Time-driven activity rate for Inspections) 43 44 45 = (8 * 3.96 $) +(3 * 11.88 $) +(6*7.92 $) 46 49 47 Labour cost in Job X = 114.84 $ 48 Labour cost in Job Y = (Number of requisitions processed in Job Y* Time-driven activity rate for requisitions processed) +(Number of bid evaluations done in Job Y * Time-driven activity rate for bid evaluations) +(Number of inspections done in Job Y* Time-driven activity rate for Inspections) 50 51 52 = (5 * 3.96 $) + (2* 11.88 $)+(2 * 7.92 $) 53 54 Labour cost in Job Y = 59.4$ 55

56 57 Labour cost in Job Z = (Number of requisitions processed in Job Z* Time-driven activity rate for requisitions processed) + (Number of bid evaluations done in Job 2* ime-driven activity rate for bid evaluations) +(Number of inspections done in Job Z* Time-driven activity rate for Inspections) 58 59 = (4 * 3.96 $) + (4* 11.88 $) +(6*7.92 $) 60 61 Labour cost in Job Z = 110.88 $ 62 63 64 65

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