Question

Resource Supply and Usage, Special Order, Relevancy

Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $24,150 and is capable of processing as many as 6,600 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,600 orders per year. The cost of each PC system is $1,300 per year. In addition to the salaries, Elliott spends $28,512 for forms, postage, and other supplies (assuming 26,400 purchase orders are processed). During the year, 25,750 orders were processed.

1.

Compute the total activity availability, and break this into activity usage and unused activity.

Activity availability:______		purchase orders
Activity usage:_______		purchase orders
Unused activity:_______ 2.

Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. When required, round your answers to the nearest dollar. If required, round your intermediate calculations to five decimal places.

Activity cost:	$
Cost of activity used:	$
Cost of unused activity:	$

Answer 1

1.

Activity Availability = (6600 X4) = 26,400 Purchase Orders

Activity Usage = 25,750 Purchase Orders

Unused Activity = (26,400 – 25,750) = 650 Purchase Orders    

2.

Total cost of resources supplied (activity cost) = ($24,150 X4) + ($1300 X4) + $28,512

= $130, 312

Practical Capacity = 26,400 Purchase Orders

Cost per Order = $130,312 / 26400 = $4.93606

Cost of activity used = $4.93606 X 25750 = $127,104

Cost of unused activity = $4.93606 X 650 = $3,208