Problem

The purchasing department of Ball Brothers purchases raw materials and supplies for the...

The purchasing department of Ball Brothers purchases raw materials and supplies for the various divisions in the firm. Most of the purchasing department’s costs are labor costs. The costs of the purchasing department depend on the number of items purchased. The manager of the purchasing department estimates how her department’s costs will vary with different levels of demand by the divisions. The following table provides her estimates of how the costs of purchasing vary with the aggregate number of items purchased by all divisions.

Number of Items Purchased per Week

Total Cost per Week

100-199

$1,000

200-299

1,100

300-399

1,200

400-499

1,400

500-599

1,700

600-699

2,100

700-799

2,600

800-999

3,200

In deriving this table, the manager of purchasing projects expanding the size of the department in order to keep roughly constant the time to purchase an item and the quality of the purchasing department’s services at all levels of demand placed on the department. That is, if the department is processing 750 items per week, it will provide the same quality of services given a budget of $2,600 as it would processing 250 items per week given a budget of $1,100.

Required:

a. Suppose the purchasing department is currently purchasing 610 items per week. Should the department’s costs of $2,100 per week be allocated back to the divisions, making the purchases at a charge of $3.44 per item purchased ($2,100÷610)? Explain why or why not.

b. Suppose the purchasing department is currently purchasing 210 items per week. Should the department’s costs of $1,100 per week be allocated back to the divisions, making the purchases at a charge of $5.23 per item purchased ($1,100÷210)? Explain why or why not.

c. Reconcile (explain) why your answers to (a) and (b) are either the same or different.

Step-by-Step Solution

Request Professional Solution

Request Solution!

We need at least 10 more requests to produce the solution.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the solution will be notified once they are available.
Add your Solution
Textbook Solutions and Answers Search
Solutions For Problems in Chapter 7