Laird, Inc., has three salaried clerks to process purchase orders. Each clerk is paid a salary of $28,000 and is capable of processing as many as 6,000 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 6,000 orders per year. The depreciation on each PC system is $1,500 per year. In addition to the salaries, Laird spends $11,700 for forms, postage, etc. (as¬

suming 18,000 purchase orders are processed). During the year, 16,400 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.

4.

(a) Suppose that a large special order will cause an additional 1,000 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 2,500 additional purchase orders. How will your answer to

(a) change?