4. Express total activity availability in terms of activity capacity used and unused capacity. 5 What if one of the purchasing agents agreed to work half time for $14,000? How many pur chase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders? d variable e high-low high-low Cornerstone Exercise 3.3 Account Analysis to Determine Cost Behavior Damell Poston, owner of Poston Manufacturing. Inc., wants to determine the cost behavior of abor and overhead. Darnell pays his workers a salary; during busy times, everyone works to get he orders out. Temps (temporary workers hired through an agency) may be hired to pack and pare completed orders for shipment. During slower times, Darnell catches up on bookkeep- g and administrative tasks while the salaried workers do preventive maintenance, clean the s and building, etc. Temps are not hired during slow times. Darnell found that workers' sal- ies, temp agency payments, rentals, utilities, and plant and equipment depreciation are the arest dollar accounts. He believes that workers' salaries and plant and equipment depreciation are fixed, temp agency payments are associated with the number of orders (since temp workers. are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Poston exceeds the snace in the materials storeroom, Darnell rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental navments are variable with the number of parts purchased and stored. The account balances for the past six months as well as the six-month total are as follows: OBJECTIVE tting line? CORNERSTONE 3.3 propriate e to per- vice have out using ed. Plant& Temp Agency Payments Warehouse Equipment Depreciation Workers trainers ont desk, Salaries Rental Electricity $ 2.200 2.200 2.200 S 150 350 S 275 385 $ 1,200 7,200 7,200 7,200 7,200 7,200 $43,200 January February March April May June member 540 ipment, y pump) 5600 per 655 325 340 335 2.200 2.200 2.200 1,350 1,750 O1.500 S6,240 695 725 675 200 $1,700 $3,410 S13.200 OTERO Total Information on number of machine hours, orders, and parts for the six-month period follows Number of Parts Number of Orders Machine Hours 200 10 2,000 3,100 5,800 6,200 6,500 6,000 29.600 January February March April May 600 40 coTON 550 580 350 400 510 410 1.720 be the 570 300 2.800 June (contimued) Total 88888 Chapter s Cost Behavior nex3 onotaien dlidelievA vtivibA SE Required: wis00 . Calculate the monthly average account balance for each account. Calculate the average monthly amount for each of the three drivers. 2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. Express the results in the form of an equation for total cost. 3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What is the total labor and overhead cost for July? 4. What if Darnell buys a new machine in July for $24,000? The machine is expected to last 10 years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in July? E 4 Cornerstone Exercise 3.4 High-Low Method to Determine Fixed Cost and Variable Rate E 3.4 Dohini Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders. Month Purchasing Cost Number of Purchase Ordersobng January February $18,860 230 18 065