Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is $1,100 per year. In addition to the salaries, Elliott spends $27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed.
REQUIRED:
1. Classify the resources associated with purchasing as (1) flexible or (2) committed.
2. Compute the total activity availability, and break this into activity usage and unused activity.
3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity.
(a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps with 1 images
- Vernon Corporation makes and sells state-of-the art electronics products. One of its segments produces the math machine, an in expensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expnses associated with the segment's operating activities. The relevant range for the production and sale of the range for the production and sale of the calculators is between 33,000 and 71,000 units per year. Revenue (47,000 unitsx9.00) $423,000 Unit-level variable costs Materials cost (47,000x$2.00) ($94,000) labor cost (47,000x1.00) ($47,000) manufacturing overhead (47,000x $0.20) ($9,400) shipping and handling (47,000x $0.24) ($11,280) Sales commissions (47,000x$2.00) ($94,000) contribution margin $167,320 Fixed expenses Advertising costs ($30,000) Salary of production supervisor ($66,000) Allocated company-wide facility-level expenses ($82,000) Net loss ($10,680) Required A) A large discount store has approached the…arrow_forwardDaffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $160,000, direct labor equals $100,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products. Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional operating income (loss) of accepting this offer?ENTER NEGATIVE NUMBERS WITH A "_" SIGN. DO NOT USE PARENTHESES. EXAMPLE: -1,000arrow_forwardA retail has 8 stores supplied from 4 suppliers, where each supplier supplies different goods. Delivery from the Supplier is in trucks with a capacity of 50,000 units at a cost of $1100 per load plus $100 per delivery to the store. Inventory costs are $0.1 per unit per year. The Supply Chain Manager is considering whether to use direct shipping or Milk Run delivery for 4 stores for each truck in one shipment a) if annual sales in each store are 1000,000 units, which shipping method provides the lower cost b) if the annual sales in each store are 200,000 units, which shipping method provides the lower costarrow_forward
- Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $60. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $60 each, it expects to produce and sell only 40,000 dressers for $60 each next year. The Furniture Division incurs variable costs of $16 per dresser. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. The company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum…arrow_forwardSaché, Incorporated, expects to sell 1,820 of its designer suits every week. The store is open seven days a week and expects to sell the same number of suits every day. The company has an EOQ of 1,400 suits and a safety stock of 260 suits. Once an order is placed, it takes three days for Saché to get the suits in. How many orders does the company place per year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Orders per year Assume that it is Monday morning before the store opens, and a shipment of suits has just arrived. When will Saché place its next order? O Monday O Tuesday Wednesday Thursday O Fridayarrow_forwardHighValu Incorporated manufactures a moderately priced set of lawn furniture (a table and four chairs) that it sells for $270. The company currently manufactures and sells 6, 900 sets per year. The manufacturing costs include $94 for direct materials and $54 for direct labor per set. The overhead charge per set is $44, which consists entirely of fixed costs. Highvalu is considering a special purchase offer from a large retail firm, which has offered to buy 690 sets per year for three years at a price of $186 per set. Highvalu has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity. Required: 1. What is the total relevant cost per unit to produce the units requested by the retail firm? 2. What is the estimated net effect on annual operating income if Highvalu accepts the special sales order?arrow_forward
- Sandhill Traders is one of the largest RV dealers in Austin, Texas, and sells about 2,800 recreational vehicles a year. The cost of placing an order with Sandhill's supplier is $500, and the inventory carrying costs are $260 for each RV. Management likes to maintain safety stock of 12 RVs. Most of its sales are made in either the spring or the fall. How many orders should the firm place this year? (Round intermediate calculations to 1 decimal place, e.g. 15.5 and final answer to 0 decimal places, e.g. 15.)arrow_forwardJetTaxi is a passenger airplane line that contracts with larger, well-known lines to provide transportation across the United States. JetTaxi owns 30 aircraft, and currently has contracts for 20 of those aircraft. JetTaxi normally charges $2,700,000 each year per jet to provide the carrier services. Each JetTaxi plane incurs yearly costs of $600,000 for labor, $200,000 for fuel, $400,000 in fixed overhead, and $800,000 in variable overhead. JetTaxi is considering a new contract where they would provide 5 airplanes to a new company for $2,000,000 each year per jet. Should JetTaxi accept the contract? Why? Group of answer choices No, because the differential net income would be zero. Yes, because the differential net income would be $1.6M. No, because the differential net income would be - $2M. Yes, because the differential net income would be $2M.arrow_forwardBallantine Corp. produces and sells lead crystal glassware. The firm consists of two divisions, Commercial and Specialty. The Commercial division manufactures 300,000 glasses per year. It incurs variable manufacturing costs of $8 per unit and annual fixed manufacturing costs of $900,000. The Commercial division sells 100,000 units externally at a price of $12 each, mostly to department stores. It transfers the remaining 200,000 units internally to the Specialty division, which modifies the units, adds an etched design, and sells them directly to consumers online. Ballantine Corp. has adopted a market-based transfer-pricing policy. For each glass it receives from the Commercial division, the Specialty division pays the weighted-average external price the Commercial division charges its customers outside the company. The current transfer price is accordingly set at $12. Eileen McCarthy, the manager of the Commercial division, receives an offer from Home Décor, a chain of upscale home…arrow_forward
- Nick Strizzi owns and operates a pizza delivery and take-out restaurant. In 2013, he sold 100,000 pizzas at an average selling price of $15.00. The cost to make each pizza is $3.00 for cheese, $2.50 for spices, and $3.75 for the crust and other ingredients. The annual cost of operating the business is as follows: $ 55,000 $230,000 $ 15,000 $ 30,000 $150,000 Rent Salaries Insurance Advertising Car expenses The income tax rate for 2013 was 18%. Nick is preparing a projected income assumptions are as follows: statement for 2014. The planning Increase in number of pizzas sold 10% Selling price per pizza $ 16.00 Increase in cost of cheese 8% Increase in cost of spices 5% Increase in cost of crust and other 9% ingredients Annual rent $65,000 Increase in salaries 12% Increase in insurance costs 10% Advertising costs Increase in car expenses $35,000 15% Income tax rate 17% 309 Questions 1. Prepare Nick Strizzi's statement of income for 2013 and 2014. 2. Calculate Nick Strizzi's return on…arrow_forwardRadig Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its fourteen helicopters makes between 1,100 and 2,200 round-trips per year. The records indicate that a helicopter that has made 1,100 round-trips in the year incurs an average operating cost of $500 per round-trip, and one that has made 2,200 round-trips in the year incurs an average operating cost of $400 per round-trip. Read the requirements LOADING... . Requirement 1. Using the high-low method, estimate the linear relationship y=a+bX, where y is the total annual operating cost of a helicopter and X is the number of round-trips it makes to JFK airport during the year. = + Requirement 2. Give examples of costs that would be included in a and in b. Begin by selecting which type of costs "a" and "b" represent, then select the costs that correlate with that cost type, use each cost only once.…arrow_forwardLalia rents 110,000 square feet of store space for $358,000 per year. The amount of square footage by department is shown below: Department A 45,000 square feet Department B 30,000 square feet Department C 18,000 square feet Department D 17,000 square feet Help allocate the annual rent expense among the four departments on the basis of relative square feet of floor space occupied.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education