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Process Activity Analysis The procurement process for Omni Wholesale Company includes a series of activities that transforms a materials requisition into a vendor check. The

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Process Activity Analysis The procurement process for Omni Wholesale Company includes a series of activities that transforms a materials requisition into a vendor check. The process begins with a request for materials. The requesting department prepares and sends a materials request form to the Purchasing Department. The Purchasing Department then places a request for a quote to vendors. Vendors prepare bids in response to the request for a quote. A vendor is selected based on the lowest bid.. A purchase order to the low-bid vendor is prepared. The vendor delivers the materials to the company, whereupon a receiving ticket is prepared. Payment to the vendor is authorized if the materials request form, receiving ticket, and vendor invoice are in agreement. These three documents fail to agree 50 % of the time, initiating effort to reconcile the differences. Once the three documents agree, a check is issued. The process can be diagrammed as follows: Requesting, Receiving Preparing Materials Request (M/R) Preparing and Delivering Vendor Check Matching MR, R/T and Vendor Invoice Preparing Purchase Order Preparing Receiving Ticket (RT) and Selecting Vendor Bids Correcting Recondiliation Differences An activity analysis indicated the following activity costs with this process: Preparing materials request $42,000 Requesting, receiving, and selecting vendor bids 162,000 Preparing purchase order 24,000 Preparing receiving ticket 36,000 Matching M/R, R/T, and invoice 54,000 Correcting reconciliation differences 222,000 Preparing and delivering vendor payment 60,000 Correcting reconciliation differences 222,000 Preparing and delivering vendor payment 60,000 Total process activity cost $600,000 On average, the process handles 60,000 individual requests for materials that result in 60,000 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 80 %. 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 50 % to 15%, over an average of 60,000 payments. a. Develop a table showing the percent of individual activity cost to the total process cost. Round percentages to the nearest whole number, if required. Omni Wholesale Company Individual activity cost to the total process cost Procurement Activities Activity Cost Percent of Total Process Cost Preparing materials request Requesting, receiving, and selecting vendor bids Preparing purchase order Preparing receving ticket Matching M/R, R/T, and invoice Correcting reconcilation differences Preparing and delivering vendor payment Total process activity cost b. Determine the average total process cost per vendor payment, assuming 60,000 payments. Round to the nearest cent, if required. per vendor payment 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 a "0 Omni Wholesale Company Changes activity costs Procurement Activities Activity Cost Prior to Improvement Activity Cost After Improvement Activity Cost Savings Preparing materials request Requesting, receiving, and selecting vendor bids Preparing purchase order Preparing receiving ticket Matching M/R, R/T, and invoice Correcting reconciliation differences Preparing and delivering vendor payment Total process activity cost d. Estimate the average cost per vendor payment, assuming that the changes proposed by management are enacted for 60,000 total payments. Round to the nearest cent per vendor payment

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