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Activity-Based Costing: Hampstead Company

Hampstead company's order entry department has 20 order entry operators. The cost associated with these 20 operators (salaries, fringe benefits, and supervision, as well as occupancy and equipment costs) is $873,600 per year. After taking into account vacations and holidays, Hampstead calculated that each operator worked about 1,920 hours per year. Allowing for breaks, training, and other time off, each operator provided about 1,560 hours of productive work each year. Hampstead uses time-driven activity based costing for its order entry operations.

(a) What is the rate per hour for each order entry employee for Hampstead's activity-based costing system?
(b) On average, it takes an order entry employee about 0.1 hour to enter the basic customer information for a manual customer order. In addition, manual orders require an operator spend and additional 0.02 hour to enter each line item on the order. An operator spends an average of 0.06 hour to check the information on an electric order, but no further entries are needed for specific line items. What is the order entry cost associated wit each of the following two orders?
(1) A manual order with 10 line items items.
(2) An electronic order with 10 line items.

Solution Preview

For part a, you will first need to determine the total number of hours per year for all 20 employees. The next step will be to divide the total costs associated with these 20 operators by the total number of hours worked per year by all 20 employees.

1,560 hours x 20 order entry operators = 31,200 total hours
$873,600 /ยท 31,200 ...

Solution Summary

This solution includes an explanation of how to solve each question with step by step calcutions for each. The solution is approximately 247 words in length.