Question
An activity analysis indicated the following activity costs with this process: 1 Preparing materials request $36,000.00 2 Requesting, receiving, and selecting vendor bids 100,000.00 3
An activity analysis indicated the following activity costs with this process:
1 | Preparing materials request | $36,000.00 |
2 | Requesting, receiving, and selecting vendor bids | 100,000.00 |
3 | Preparing purchase order | 20,000.00 |
4 | Preparing receiving ticket | 24,000.00 |
5 | Matching M/R, R/T, and invoice | 48,000.00 |
6 | Correcting reconciliation differences | 140,000.00 |
7 | Preparing and delivering vendor payment | 32,000.00 |
8 | Total process activity cost | $400,000.00 |
On average, the process handles 20,000 individual requests for materials that result in 20,000 individual payments to vendors.
Management proposes to improve this process in two ways. First, the Purchasing Department will develop a preapproved vendor list for which orders can be placed without a request for quote. It is expected that this will reduce the cost of requesting and receiving vendor bids by 75%. Second, additional training and standardization will be provided to reduce errors introduced into the materials requisition form and receiving tickets. It is expected that this will reduce the number of reconciliation differences from 40% to 10%, over an average of 20,000 payments.
Required: | |
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A. | Develop a table showing the percent of individual activity cost to the total process cost. |
B. | Determine the average total process cost per vendor payment, assuming 20,000 payments. |
C. | Prepare a table showing the improvements in the activity costs as a result of the changes proposed by management. If an amount is zero, enter "0". |
D. | Estimate the average cost per vendor payment, assuming that the changes proposed by management are enacted for 20,000 total payments. If required, round your answers to the nearest cent. |
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