Question

EcoBrite Labs performs tests on water samples supplied by outside companies to ensure that their waste water meets environmental standards. Customers deliver water samples to the lab and receive the lab reports via the Internet. The EcoBrite Labs facility is built and staffed to handle the processing of 100,000 tests per year. The lab facility cost $150,000 to build and is expected to last 10 years and will have no salvage value. Processing equipment cost $210,000 and has a life expectancy of five years and will have no salvage value. Both facility and equipment are depreciated on a straight-line basis. EcoBrite Labs has six salaried laboratory technicians, each of whom is paid $32,000. In addition to the salaries, facility, and equipment, EcoBrite Labs expects to spend $48,000 for chemicals and other supplies (assuming 100,000 tests are performed). Last year, 88,000 tests were performed.

Required:

1. Classify the resources associated with the water testing activity into one of the following types: (1) committed resources and (2) flexible resources.

Committed resources: Lab facility, equipment and technician salaries
Flexible resources:      Chemicals and supplies

2. Calculate the total annual activity rate for the water testing activity. Break the activity rate into fixed and variable components. (Round your answers to three significant digits.)

Total water testing rate:	$ per test
Variable activity rate:	$ per test
Fixed activity rate:	$ per test

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

Activity availability:	tests
Activity usage:	tests
Unused activity:	tests

4. Calculate the total cost of resources supplied, and break this into the cost of activity used and the cost of unused activity.

Cost of activity supplied:	$
Cost of activity used:	$
Cost of unused activity:	$

Answer 1

Solution:

1)

Committed resources = Lab facility, Equipment and technician salaries

Flexible resources= Chemicals and supplies

2)

Computation of total water testing rate:

Facility cost ($150,000 /10 years)	$15,000
Processing equipment ($210,000/5 years)	$42,000
Salary of laboratory[(32,000*6)+48,000]	$240,000
Totals	$297,000

Total water testing rate = $297,000 /100,000

=$2.97 per test

Variable activity rate = $48,000/100,000

=$0.48

Fixed activity rate = Total water testing rate - Variable activity rate

=$2.97 -$0.48

=$2.49

Total water testing rate	$2.97
variable activity rate	$0.48
Fixed activity rate	$2.49

3)

Activity availability = 100,000 tests

Activity usage = 88,000 tests

Unused activity = Activity availability - Activity usage

=100,000 -88,000

Unused activity =12,000 tests

4)

Computation of activity supplied :

Faciliy cost ($150,000/10)	$15,000
Processing equipment(210,000/5)	$42,000
Technicians salaries (32,000*6)	$192,000
Chemical and supplies (88,000*0.48)	$42,240
Cost of activity supplied	$291,240

Cost of activity used = Total water testing rate × Activity Usage

=$2.97*88,000 tests

=$261,360

Cost of unused activity = Fixed activity rate × unused activity

=$2.49*12,000 tests

=$29,880

Cost of activity supplied	$291,240
Cost of activity used	$261,360
Cost of unused activity	$29,880

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