Case B-2

Commitment and consumption of activity resources Steelmax, Inc., sells office furniture in the Chicago metropolitan area. To better serve its business customers, Steelmax recently introduced a new same-day service. Any order placed before 2:00 P.M. is delivered the same day.

Steelmax hires five workers on an eight-hour daily shift to deliver the office furniture. Each delivery takes 30 minutes on average. If the number of customer orders exceeds the available capacity on some days, workers are asked to work overtime to ensure that all customer orders are delivered the same day. Regular wages are $12 per hour. Overtime wages include a 50% premium in addition to the regular wages.

Steelmax's management has noticed considerable fluctuation in the number of customer orders from day to day during the past three months, as shown here:

DAY OF THEWEEK

AVERAGE NUMBER OF ORDERS

Monday

65

Tuesday

70

Wednesday

80

Thursday

85

Friday

95

Steelmax has decided to pursue a more variable hiring policy. It will reduce the number of delivery workers to four on Mondays and Tuesdays and increase the number to six on Fridays.

Required

(a) Determine the total and unit delivery cost per day under the old hiring policy when the number of daily customer orders is 70, 80, or 90.

(b) For each day of the week, determine the expected total delivery cost per day and the expected delivery cost per customer order based on both the old and the new hiring policy. What is the expected savings per week with the new variable hiring policy?