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 25 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: 65 minutes.

• Hiring: 80 minutes.

• Assessment: 115 minutes.

• Separation Processing: 110 minutes.

Employees in Personnel work 55-hour weeks with four weeks for vacation. Of the 55 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 $992,000. During the year, Personnel conducted 3,200 interviews, made 775 hires, made 7,000 assessments, and had 350 separations.

Required:

a. What is the cost per minute for activities in Personnel? (Round your answer to 2 decimal places.)

b. What is the cost of interviewing and hiring one employee? (Round your intermediate calculations and final answer to 2 decimal places.)

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

d. What was the cost of the unused capacity in Personnel? (Round your intermediate calculations to 2 decimal places and round your final answer to the nearest whole dollar.)

	a. Cost per minute b. Total costs c. Unused minutes d. Cost of unused capacity

Answer 1

a.	Total costs of the Personnel Department=$ 982000
	Number of weeks in a year for the department=52-4=48 weeks
	Number of hours in a week for the department=55-5=50 weeks
	Total minutes available in the personnel department=25 staff*48 weeks*50 hours*60 minutes=3600000
	Cost per minute for activities in Personnel=Total cost/Total minutes=992000/3600000=$ 0.28
b.	Cost of interviewing and hiring one employee=Total time spent in interviewing and hiring*Cost per minute
	Total time spent in interviewing and hiring=65+80=145 minutes
	Cost of interviewing and hiring one employee=145*0.28=$ 40.60
c.	Unused capacity in minutes=Total minutes available in the personnel department-Total minutes used in the personnel department
	Total minutes used in the personnel department:
	Activity			No. of activty conducted	Minutes per activity	Total minutes used
				a	b	a*b
	Interviewing			3200	65	208000
	Hiring			775	80	62000
	Assessment			7000	115	805000
	Separation Processing			350	110	38500
	Total					1113500
	Unused capacity in minutes=3600000-1113500=2486500
d.	Cost of unused capacity=Unused capacity in minutes*Cost per minute=2486500*0.28=$ 696220