Chapter 17, Problem 6E

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. 1. Classify the resources associated with purchasing as (1) flexible or (2) committed.
2. 2. Compute the total activity availability, and break this into activity usage and unused activity.
3. 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. 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?