Question

Kim Distribution Services (KDS) distributes food purchased in bulk to small retailers. The firm is divided into two divisions: Purchasing and Distribution. Purchasing is responsible for ordering goods from the manufacturer, receiving them, and then moving them to the appropriate location in the warehouse. Distribution is responsible for taking orders from retailers, picking the products from the warehouse for the orders, and packaging the orders for shipment. KDS has a policy of filling every order on the day of the order. If the firm is out of a particular item, it will ship a partial order and complete the order when the item is back in stock. Occasionally, an order will not have to be packaged if the retailer chooses to take delivery at the KDS loading dock. Distribution has 23 employees who are responsible for the activities, and all 23 are trained to handle any of the three tasks. Each of these employees works 40 hours per week for 50 weeks. There is an allowance of 10 percent of the employees' time for training and other administrative tasks. The total costs of distribution for the coming year are estimated to be $840,000. When asked, the manager of Distribution estimated the following times for each of the three activities: • Taking orders: 18 minutes. • Picking orders: 22 minutes. • Packaging orders: 36 minutes. During the year, the Distribution received 29,000 orders. Because of out-of-stock events, pickers had to pick 34,000 orders. 29,300 orders were packaged. Required: a. What is the cost per minute for activities in Distribution? (Round your answer to 2 decimal places.) Cost per minute b. What is the cost of an order that requires all three activities? (Round your intermediate calculations and final answers to 2 decimal places.) Total costs | c. How many minutes of unused capacity did Distribution have for the year? Unused minutes d. What was the cost of the unused capacity in Distribution? (Round your intermediate calculations to 2 decimal places.) Cost of unused capacity

Answer 1

Answer:

Total working minutes available = { Number of employees × Number of weeks × Number of hours × Number of minutes per hour × (1–10%) }

Total working minutes available = ( 23 × 50 × 40 × 60 × 0.90 )

=2,484,000

Total actual minutes used = Taking orders + Picking orders + Packaging order

Total actual minutes used = (29000 × 18 minutes) + ( 34000 × 22 minutes) + (29300 × 36 minutes)

Total actual minutes used = 522,000 + 748,000 + 1,054,800

=2,324,800

a. Computation of Cost per minutes for Activities in distribution.

Cost per minute = Total cost of distribution ÷ Total working minutes available ( as shown above )

Cost per minute = $840,000 ÷ $2,484,000 = $ 0.34

b.Computation of cost of an order that requires all three Activities:

Total Cost of an Order = (Taking order + picking order + Packaging order)× cost per minute

Total Cost = (18+ 22+ 36) × $0.34

Total cost = $25.84

c. Computation of minutes of unused capacity:

Total minutes of unused capacity = Total Available minutes - Total Used minutes

Total minutes of unused capacity = 2,484,000 – 2,324,800

Total unused minutes = 159,200 minutes

d. Computation of Cost of the unused capacity in distribution.

Cost of unused capacity = Total minutes of unused capacity × cost per minute

Cost of unused capacity = 159,200 minutes × $0.34

Cost of unused capacity= $54,128