King & Elliott LLC (K&E) is budgeting for next year. Much of the work that K&E does relates to repeat business (quarterly and ann tax filings and annual audits), but the partners also work hard to gain new business. The firm employs 40 professional accountants salaried and four administrative staff members-all hourly. The following chart shows the number of accountants by role, along w targeted billable hours and billable rates for each level. Target Billable Hours per Person are annual amounts, as the TFC are given annually Partner Manager Senior Staff Number of Accountants 5 5) 20 Target Billable Hours per Person 1,100 1.100 1,700 1,700 Billable Rate/Hour $155 120 105 80 he administrative staff costs the firm, on average, $15 per billable hour. Additionally, miscellaneous supplies usually run $5 per illable hour.

King & Elliott LLC (K&E) is budgeting for next year. Much of the work that K&E does relates to repeat business (quarterly and ann tax filings and annual audits), but the partners also work hard to gain new business. The firm employs 40 professional accountants salaried and four administrative staff members-all hourly. The following chart shows the number of accountants by role, along w targeted billable hours and billable rates for each level. Target Billable Hours per Person are annual amounts, as the TFC are given annually Partner Manager Senior Staff Number of Accountants 5 5) 20 Target Billable Hours per Person 1,100 1.100 1,700 1,700 Billable Rate/Hour $155 120 105 80 he administrative staff costs the firm, on average, $15 per billable hour. Additionally, miscellaneous supplies usually run $5 per illable hour.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 6E: Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of...

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Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of 25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is 1,100 per year. In addition to the salaries, Elliott spends 27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Classify the resources associated with purchasing as (1) flexible or (2) committed. 2. Compute the total activity availability, and break this into activity usage and unused activity. 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. 4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?
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