Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of$25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk usesa PC and laser printer in processing orders. Time available on each PC system is sufficient toprocess 6,500 orders per year. The cost of each PC system is $1,100 per year. In addition to thesalaries, Elliott spends $27,560 for forms, postage, and other supplies (assuming 26,000 purchaseorders are processed). During the year, 25,350 orders were processed.Required:1. Classify the resources associated with purchasing as (1) flexible or (2) committed.2. Compute the total activity availability, and break this into activity usage and unused activity.3. Calculate the total cost of resources supplied (activity cost), and break this into the cost ofactivity used and the cost of unused activity.4. (a) Suppose that a large special order will cause an additional 500 purchase orders. Whatpurchasing costs are relevant? By how much will purchasing costs increase if the order isaccepted? (b) Suppose that the special order causes 700 additional purchase orders. How willyour answer to (a) change?
Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of
$25,750 and is capable of processing as many as 6,500 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 6,500 orders per year. The cost of each PC system is $1,100 per year. In addition to the
salaries, Elliott spends $27,560 for forms, postage, and other supplies (assuming 26,000 purchase
orders are processed). During the year, 25,350 orders were processed.
Required:
1. Classify the resources associated with purchasing as (1) flexible or (2) committed.
2. Compute the total activity availability, and break this into activity usage and unused activity.
3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of
activity used and the cost of unused activity.
4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What
purchasing costs are relevant? By how much will purchasing costs increase if the order is
accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will
your answer to (a) change?
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