Question

Q 3.6 (Valley Forge Income Tax Advice) VF is a small accounting firm supporting wealthy individuals in their preparation of annual income tax statements. Every December, VF sends out a short survey to their customers, asking for the information required for preparing the tax statements. Based on 24 years of experience, VF categorizes their cases into the following groups:

• Group 1 (new customers, easy): 15 percent of cases

• Group 2 (new customers, complex): 5 percent of cases

• Group 3 (repeat customers, easy): 50 percent of cases

• Group 4 (repeat customers, complex): 30 percent of cases?Here, “easy” versus “complex” refers to the complexity of the customer's earning situation.

In order to prepare the income tax statement, VF needs to complete the following set of activities. Activity times (and even which activities need to be carried out) depend on which group a tax statement falls into. All of the following activity times are expressed in minutes per income tax statement.

Group	Filing	Initial Meeting	Preparation	Review by Senior Accountant	Writing
1	20	30	120	20	50
2	40	90	300	60	80
3	20	No Meeting	80	5	30
4	40	No Meeting	200	30	60

The activities are carried out by the following three persons:

• Administrative support person: filing and writing.

• Senior accountant (who is also the owner): initial meeting, review by senior accountant.

?• Junior accountant: preparation.

Assume that all three persons work eight hours per day and 20 days a month. For the following questions, assume the product mix as described above. Assume that there are 50 income tax statements arriving each month.

a. Which of the three persons is the bottleneck??

b. What is the (implied) utilization of the senior accountant? The junior accountant? The administrative support person??

c. You have been asked to analyze which of the four product groups is the most profitable.

Which factors would influence the answer to this?

?d. How would the process capacity of VF change if a new word processing system would reduce the time to write the income tax statements by 50 percent?

Answer 1

Working Hours of the three people in a month=	=8 hours*20Days
	=8*20
	160 Hours
Number ofincome Tax in a month =	50
Computation of Time require by each person to Carry on their activities for 50 Income Tax in a month
	Administrative Support Person
Group	Filing/File	Writing/File	Filing for 50 Files	Writing for 50 Files	Total Time		Time require for each Group
1	20	50	1000	2500	3500	15%	525
2	40	80	2000	4000	6000	5%	300
3	20	30	1000	1500	2500	50%	1250
4	40	60	2000	3000	5000	30%	1500
Total Time (in Minutes)			6000	11000	17000		3575
Total Time (in Hours)			100	183.33	283.33		59.58
Senior Accountant
Group	Initial Meeting	Review by Senior Accountant	Initial Meeting for 50 Files	Review for 50 Files	Total Time		Time require for each Group
1	30	20	1500	1000	2500	15%	375
2	90	60	4500	3000	7500	5%	375
3	No Meeting	5	0	250	250	50%	125
4	No Meeting	30	0	1500	1500	30%	450
Total Time (in Minutes)			6000	5750	11750		1325
Total Time (in Hours)			100	95.83	195.83		22.08
Junior Accountant
Group	Preparation	Initial Meeting for 50 Files		Time require for each Group
1	120	6000	15%	900
2	300	15000	5%	750
3	80	4000	50%	2000
4	200	10000	30%	3000
Total Time (in Minutes)		35000		6650
Total Time (in Hours)		583.33		110.83
Answer (a) Time required by each personn to perform their activity for 50 income tax statement given the product mix is
Administrative Support person	59.58
Senior Accountant	22.08
Junior Accountant	110.83
Since all the persons have maximum capacity of 160 Hrs in a month, therefore none of the person is in bottleneck.
(b) Utilisation of each person is as under:
Administrative Support person	59.58
Senior Accountant	22.08
Junior Accountant	110.83
Total Time consumed by Each group for all the activities
Group	Filing	Initial Meeting	Preparation	Review by Senior Accountant	Writing	Total time in Minutes	Total time in Hours
1	1000	1500	6000	1000	2500	12000	200
2	2000	4500	15000	3000	4000	28500	475
3	1000	0	4000	250	1500	6750	112.5
4	2000	0	10000	1500	3000	16500	275
Answer (c) Group No. 3 is the most profitable group as it takes the minimum time to complete the work.
Group	Filing	Initial Meeting	Preparation	Review by Senior Accountant	Writing uner Word processing System= 50% of Writing Time	Total time in Minutes	Total time in Hours With new System	Total time in Hours with old system	Reduction in Time
1	1000	1500	6000	1000	1250	10750	179.1666667	200	20.83333
2	2000	4500	15000	3000	2000	26500	441.6666667	475	33.33333
3	1000	0	4000	250	750	6000	100	112.5	12.5
4	2000	0	10000	1500	1500	15000	250	275	25
									91.66667
(D) so the total reduction in time is 91.67 Hours under new process.
Note-
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