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 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

(1) Cost Per Minute

Particulars	Working	Total
(A) Total Salary	$ 25,000 * 20	$ 50,000
(B) Total Minutes to be worked ( No. of Employees * Total Weeks * Hours Woked Per Week * Minutes Per Hour * Capacity Percent)	20*52*40*60*85%	2,121,600 Minutes
(C) Cost Per Minute (A/B)		$ 0.24

(2) Time Driven Activity Rate :

Activity	Minutes Required	Cost Per Activity (Minutes * 0.24)
Requisition Processing	15 Minutes	$ 3.6
Bid Evaluation	45 Minutes	$ 10.8
Inspection	30 Minutes	$ 7.2

(3) Purchasing Department Labor Cost Assigned to Job X, Job Y, and Job Z

Jobs	Requistion	Bid Evaluation	Inspection
No. of Activities ($ 3.6)	Total Cost	No. of Activities ($ 10.8)	Total Cost	No. of Activities ($ 7.20)	Total Cost
Job X	8	$ 28.80	4	$ 43.2	7	$ 50.4
Job Y	5	$ 18	3	$ 32.4	3	$ 21.6
Job Z	4	$ 14.40	5	$ 54	7	$ 50.4
Total		$ 61.20		$ 129.6		$ 122.4