Question

# Saratoga Company manufactures jobs to customer specifications. The company is conducting a time-driven activity-based costing study...

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 6 Average salary per employee \$ 29,500 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 7 4 3 Number of bid evaluations 3 2 4 Number of inspections 6 2 6

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 Bid Evaluation Inspection Activity demands for all jobs 1,800 4,200 8,200

Required:

1. Will the revised activity demands affect the total Purchasing Department labor costs assigned to Job X, Job Y, and Job Z?

2. Using the revised activity demands, calculate Saratoga’s used capacity in minutes.

3. Using the revised activity demands, calculate Saratoga’s unused capacity in minutes.

4. Using the revised activity demands, calculate Saratoga’s unused capacity in number of employees. (Round your answer to 2 decimal places.)

5. Based on the revised activity demands, calculate the impact on expenses of matching capacity with demand. (Be sure to round down your potential adjustment in the number of employees to a whole number. Negative amount should be indicated by a minus sign.)

 1 Revised activity demands affect total Purchasing Department labor costs assigned to Jobs X, Y, and Z ? No 2 Used capacity in minutes 3 Unused capacity in minutes 4 Unused capacity in number of employees 5 Impact on expenses of matching capacity with demand

 A Number of employees 6 B Average salary per employee 29500 C Weeks of employment 52 D Hours per week 40 E Practical capacity % 85% F Maximum capacity hours (A*C*D) 12480 G Practical capacity hours (F*E) 10608 Particulars Requistion processing Bid Evaluation Inspection Total H Activity demand 1800 4200 8200 I Minutes required per activity 15 45 30 J Used capacity in minutes (H*I) 27000 189000 246000 462000 K Practical capacity minutes (G*60) 636480 L Unused capacity minutes (K-J) 174480 M Per employee practical capacity (mins) per annum (C*D*E*60) 106080 N Unused Capacity (no of employees) (L/M) 1.645 O Impact on expenses on matching capacity with demand (\$) (N*B) 48521.49

Requirements :

 1 Revised activity demands affect total Purchasing Department labor costs assigned to Jobs X, Y, and Z = NO No 2 Used capacity in minutes = 462,000 3 Unused capacity in minutes = 174,480 4 Unused capacity in number of employees = 1.645 5 Impact on expenses of matching capacity with demand = \$ -45821.49

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