Question

The manager of the Personnel Department at City Enterprises has been reading about time-driven ABC and wants to apply it to her department. She has identified four basic activities her employees spend most of the their time on: Interviewing, Hiring, Assessment, and Separation Processing. The department employs 12 staff who perform these activities. The manager provides the following estimates for the amount of time it takes to complete each of these activities:

• Interviewing: 52 minutes.

• Hiring: 67 minutes.

• Assessment: 89 minutes.

• Separation Processing: 97 minutes.

Employees in Personnel work 42-hour weeks with four weeks for vacation. Of the 42 hours, five are reserved for administrative tasks, training, and so on. The costs of the Personnel Department, including any allocated costs from other staff functions, are $979,000. During the year, Personnel conducted 1,900 interviews, made 515 hires, made 4,400 assessments, and had 285 separations.

Required:

a. What is the cost per minute for activities in Personnel?

b. What is the cost of interviewing and hiring one employee?

c. How many minutes of unused capacity did Personnel have for the year?

d. What was the cost of the unused capacity in Personnel?

Answer 1

Computation of time required for each activity:
Activity	Time required	Total time required in minutes
Interviewing	52 minutes x 1,900 interviews	98,800
Hiring	67 minutes x 515 hires	34,505
Assessment	89 minutes x 4,400 assessments	391,600
Separation processing	97 minutes x 285 separations	27,645
Total		552,550
Total time available with personnel department = 12 employees x 48 weeks x (42-5 hours per week per employee) x 60 minutes per hour
= 1,278,720 minutes
a. Cost per minute for activities in Personnel
= Cost of personnel department / Total time available with personnel department
= $979,000 / 1,278,720 minutes = $0.77 per minute
b. Cost of interviewing and hiring one employee
Cost of interviewing one employee = 52 minutes x $0.77 per minute = $40.04
Cost of hiring one employee = 67 minutes x $0.77 per minute = $51.59
c. Minutes of unused capacity in the personnel department
= Total time available with personnel department - Total time required
= 1,278,720 minutes - 552,550 minutes = 726,170 minutes
d. Cost of unused capacity in the personnel department
= Unused capacity in the personnel department x Cost per minute
= 726,170 minutes x $0.77 per minute = $559,150.90