Question

The following data is obtained from the general records in the shipping department at Chicago Delivery Company for August:

-- Inspecting packages prior to placement on truck takes 1 minute per package.

-- Processing paperwork for each shipment (each truck loaded) takes 30 minutes.

-- Loading packages takes 1 minute of labor per package plus an additional 3 labor hours per truck

-- Miscellaneous tasks take 2 hours per truck.

-- Temporary employees to perform all of the above tasks can be hired for any amount of hours at a rate of $20 per hour during the summer (no benefits).

-- One supervisor is needed for every 1,000 hours of temporary employee labor (rounded up).

-- Supervisors are paid a flat rate of $4,100 per month.

-- Supervisors divide their time evenly among inspecting, processing, and loading activities, and miscellaneous tasks.

-- $1,000 per month general department overhead is allocated to miscellaneous tasks and $2,000 per month to loading, inspecting and processing activities.

August will have 12 working days. Chicago company expects to load 6 trucks per day during August.

There are on average 100 packages per truck.

Required:

Prepare a budget using the activity-based approach for the costs of inspecting, processing, loading, and miscellaneous activities within the shipping department for August.

Answer 1

Calculation of Inspecting Time :
Time = 1 min per package
Total Packages = 12 days * 6 Trucks * 100 Packages = 7200 Packages
Total Time = 7200 *1 = 7200 Minutes = 7200 /60 = 120 hrs

Calculatin of Processing Time:
Time = 30 minutes per shipment
Total Shipment = 12 days * 6 trucks = 72 shipments
Total Time = 72*30 min = 2160 minutes = 2160/60 = 36 hrs

Calculation of Loading Time:
Time = 1 minutes per package + 3 hrs per shipment
Total no. of packages = 7200
Total time of packages = 7200 *1 = 7200 minutes = 120 hrs
Total time of shipment = 3 hrs * 72 shipments = 216 hrs
Total time of Loadind = 120 +216 = 336 hrs

Calculation of Miscellaneous Time:
Time = 2 hrs per truck
Total Time = 2 hrs* 6 trucks * 12 days = 144 hrs

Calculation of No. of Supervisors needed:
Total hrs = 120 + 36 +336 + 144 = 636 hrs
One Supervisor required for every 1000 hrs hence only 1 supervisor is needed.

This budget is as per ABC. and Supervisor charges of $4100 is based on total labour 636 hrs and respective allocation of cost is calculated by dividing 4100/636 * Respective no. of hrs.