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:
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 | 11 |
|---|---|
| Average salary per employee | $ 27,000 |
| 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 | 6 | 3 | 2 |
| Number of bid evaluations | 4 | 3 | 5 |
| Number of inspections | 7 | 3 | 7 |
Now assume that Saratoga Company would like to answer the following “what if” question using its time-driven activity-based costing system: Assuming our estimated activity demands for all jobs in the next period will be as shown below, how will this affect our
| Requisition Processing | Bid Evaluation | Inspection | |
|---|---|---|---|
| Activity demands for all jobs | 8,300 | 10,950 | 11,700 |
Required:
1. Will the revised activity demands affect the total Purchasing Department labor costs assigned to Job X, Job Y, and Job Z?
2. Using the revised activity demands, calculate Saratoga’s used capacity in minutes.
3. Using the revised activity demands, calculate Saratoga’s unused capacity in minutes.
4. Using the revised activity demands, calculate Saratoga’s unused capacity in number of employees. (Round your answer to 2 decimal places.)
5. Based on the revised activity demands, calculate the impact on expenses of matching capacity with demand. (Be sure to round down your potential adjustment in the number of employees to a whole number. Negative amount should be indicated by a minus sign.)
Job costing can help businesses determine the cost of specific projects or products, and compare those costs to the revenue generated by the project or product. This information can help businesses make informed decisions about pricing, production methods, and other factors that impact profitability. It can also help businesses track employee productivity and identify areas where employees may need more training or support. By understanding which employees are most productive in which types of jobs, businesses can better allocate resources and optimize their workforce. Finally, It can provide valuable insights into a business's overall cost structure. This information can be used to negotiate better prices with suppliers, improve efficiencies in operations, and make other strategic decisions that ultimately reduce costs and improve profits
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