Control of Discretionary Costs The manager of a Singapore warehouse for a mail-order firm is concerned with the control of his fixed costs. He has recently applied work-measurement techniques and an engineered-cost approach to the staff of order clerks and is wondering if a similar technique could be applied to the workers who collect merchandise in the warehouse and bring it to the area where orders are assembled for shipment.

The warehouse foreman contends that this should not be done, because the present work force of twenty men should be viewed as a fixed cost necessary to handle the normal volume of orders with a minimum of delay. These men work a forty-hour week at $2.50 per hour.

Preliminary studies show that it takes an average of twelve minutes for a worker to locate an article and take it to the order-assembly area, and that the average order is for two different articles. At present the volume of orders to be processed is 1,800 per week.

For the present volume of orders, develop a discretionary-cost and an engineered-cost approach for the weekly performance report.

. Repeat 1 for volume levels of 1,600 and 1,400 orders per week. - What other factors should be compared with the budget variances found in 1 and 2 in order to make a decision on the size of the work force?