Chapter 12, Problem 5CE

Uchdorf Manufacturing just completed a study of its purchasing activity with the objective of improving its efficiency. The driver for the activity is number of purchase orders. The following data pertain to the activity for the most recent year:

Activity supply: five purchasing agents capable of processing 2,400 orders per year (12,000 orders)

Purchasing agent cost (salary): $45,600 per year

Actual usage: 10,600 orders per year

Value-added quantity: 7,000 orders per year

Required:

1. 1. Calculate the volume variance and explain its significance.
2. 2. Calculate the unused capacity variance and explain its use.
3. 3. What if the actual usage drops to 9,000 orders? What effect will this have on capacity management? What will be the level of spending reduction if the value-added standard is met?