Question

Saratoga Company manufactures jobs to customer specifications. The company is conducting a time-driven activity-based costing study in its Purchasing Department to better understand how Purchasing Department labor costs are consumed by individual jobs. To aid the study, the company provided the following data regarding its Purchasing Department and three of its many jobs:

Number of employees		18
Average salary per employee	$	27,000
Weeks of employment per year		52
Hours worked per week		40
Practical capacity percentage		85	%
	Requisition Processing			Bid Evaluation	Inspection
Minutes per unit of the activity	15			45	30
	Job X			Job Y	Job Z
Number of requisitions processed	6			3	2
Number of bid evaluations	2			1	3
Number of inspections	5			1	5

Required:

1. Calculate the cost per minute of the resource supplied in the Purchasing Department.

2. Calculate the time-driven activity rate for each of Saratoga’s three activities.

3. Calculate the total purchasing labor costs assigned to Job X, Job Y, and Job Z.

Answer 1

Step 1: Calculation of total Annual cost
Average salary per employee	$          27,000
Number of employees	18
Total Annual cost (18*27000)	$       486,000

Step 2: Calculation of total Practicable minutes
Number of employees	18
Weeks of employment per year	52
Hours worked per week	40
Minutes per Hour	60
Practical capacity percentage	85%
Total Practicable minutes (18*52*40*60*85%)	1909440

1. Calculate the cost per minute of the resource supplied in the Purchasing Department
Total Annual cost (18*27000)				$ 486,000
Total Practicable minutes (18*52*40*60*85%)				1909440
Cost per minute of the resource supplied in the Purchasing Department (486000/1909440)				$        0.25

2. Calculate the time-driven activity rate for each of Saratoga’s three activities.
(a)	(b)	(c)	(d) = (b)*(c)
Activity	Minutes per unit of the activity	Cost per minute	Time driven activity rate
Requisition Processing	15	$                 0.25	$                                  3.82
Bid Evaluation	45	$                 0.25	$                                11.45
Inspection	30	$                 0.25	$                                  7.64

3. Calculate the total purchasing labor costs assigned to Job X, Job Y, and Job Z.

(a)	(b)	(c)	(d) = (b)*(c)
		Time driven activity rate	Total
Number of Requisition Processing	6	$                 3.82	$                                22.91
Number of Bid Evaluation	2	$               11.45	$                                22.91
Number of Inspection	5	$                 7.64	$                                38.18
Labor cost assigned to Job X			$                                83.99

(a)	(b)	(c)	(d) = (b)*(c)
		Time driven activity rate	Total
Number of Requisition Processing	3	$                 3.82	$                                11.45
Number of Bid Evaluation	1	$               11.45	$                                11.45
Number of Inspection	1	$                 7.64	$                                  7.64
Labor cost assigned to Job Y			$                                30.54

(a)	(b)	(c)	(d) = (b)*(c)
		Time driven activity rate	Total
Number of Requisition Processing	2	$                 3.82	$                                  7.64
Number of Bid Evaluation	3	$               11.45	$                                34.36
Number of Inspection	5	$                 7.64	$                                38.18
Labor cost assigned to Job Z			$                                80.18