Question

Corporation is conducting a time-driven activity-based costing study in its Tech Support Department. The company has provided the following data to aid in that study:

Jahnel Corporation
Tech Support Department
Data Inputs
Resource Data:
Number of employees		7
Average salary per employee	$	43,200
Weeks of employment per year		50
Minutes available per week (40 hours × 60 minutes)		2,400
Practical capacity percentage		90	%

Activity Data:	Routing Calls	Resolving Problems	Preparing Change Orders
Minutes per unit of the activity	14	22	34

On the Customer Cost Analysis report in time-driven activity-based costing, the time-driven activity rate for Resolving Problems would be closest to:

Answer 1

In order to calculate the time-driven activity rate for resolving problems, we will first calculate the employee cost per minute as follows:
Total employee cost / Total minutes worked
Total employee cost = No. of employees x Average salary per employee
=> Total employee cost = 7 employees x $43,200 per employee = $302,400
Total minutes worked = No. of employees x weeks of employment per year x minutes available per year x practical capacity percentage
=> Total minutes worked = 7 employees x 50 weeks x 2,400 minutes per week x 90%
=> Total minutes worked = 756,000
Hence, the employee cost per minute is $0.40 ($302,400 / 756,000 minutes)
Now we will calculate the time-driven activity rate for resolving problems as follows:
Minutes taken per problem resolved x employee cost per minute
= 22 minutes x $0.40 per minute = $8.80 per problem resolved