Question

Activity Availability, Capacity Used, Unused Capacity

Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid $30,000 per year and is able to process 3,000 purchase orders. Last year, 13,350 purchase orders were processed by the five agents.

Required:

1. Calculate the activity rate per purchase order.

$ per purchase order

2. Calculate, in terms of purchase orders, the:

a.	Total activity availability	purchase orders
b.	Unused capacity	purchase orders

3. Calculate the dollar cost of:

a.	Total activity availability	$
b.	Unused capacity	$

4. Express total activity availability in terms of activity capacity used and unused capacity. Express total activity availability in terms of activity capacity used and unused capacity.
Purchase orders

Total activity availability		Activity capacity used		Unused capacity
	=		+

Dollars cost

Total activity availability		Activity capacity used		Unused capacity
$	=	$	+	$

5. What if one of the purchasing agents agreed to work half time for $15,000?

a. How many purchase orders could be processed by four and a half purchasing agents?

purchase orders

b. What would unused capacity be in purchase orders?

purchase orders

Answer 1

1. Activity rate per purchase order = $10

Explanation;

Activity rate per purchase order ($30000 / 3000) = $10

2.

a.	Total activity availability	15000 purchase orders
b.	Unused capacity	1650 purchase orders

Explanation;

Total activity available (3000 * 5) = 15000

Unused capacity (15000 – 13350) = 1650

3. Dollar cost of;

a.	Total activity availability	$150000
b.	Unused capacity	$16500

Explanation;

Total activity available (15000 * $10) = 150000

Unused capacity (1650 * $10) = $16500

4.

Purchase orders;

Total activity availability		Activity capacity used		Unused capacity
15000	=	13350	+	1650

Dollars cost;

Total activity availability		Activity capacity used		Unused capacity
$150000	=	$133500	+	$16500

5.

(a). Purchase orders could be processed by four and a half purchasing agents (3000 * 4.5) = 13500 Purchase orders

(b). Unused capacity be in purchase orders 13500 – (13350 * 4.5 / 5) = 1485 Purchase orders