Blake Furniture, Inc., maintains an Accounts Receivable Department that currently employs eight people. Blake is interested in doing an activity analysis because an outside firm has offered to take over a portion of the activities currently handled by the Accounts Receivable Depart- ment. The four main activities handled by the department are (1) billing and recording payments,

(2)  customer service activities, (3) financial reporting and analysis, and (4) collecting delinquent accounts.

The salaries paid to the department’s employees are as follows:

 

 

Manager, 1 @ $65,000 per year  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  65,000
Clerks, 5 @ $30,000 per year  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	150,000
Account specialists, 2 @ $38,000 per year  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76,000
Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$291,000

 

It is estimated that the manager of the Accounts Receivable Department spends an equal amount of her time supervising the four main activities. The clerks spend approximately half of their time on billing and recording payments. Their remaining time is divided equally between reporting activities and customer service. The two account specialists spend half of their time on delinquent account activities, and the rest of their time is split equally between financial analysis activities and customer service activities that the clerks are not qualified to perform.

Paypro, Inc., has proposed that it can perform all the activities related to collecting delin- quent accounts for a fee of $50,000 per year. The manager of Paypro argues that Blake can  save

$26,000 because the $76,000 in salaries paid to the specialists who currently handle all delin- quent accounts can be eliminated. If the contract is accepted, it is estimated that the manager of the Accounts Receivable Department would need to devote a quarter of her time to dealing with Paypro employees.

a.      Using the information given, prepare an activity table such as that in Exhibit 19–3 on page 846 to calculate the labor cost for personnel devoted to each of the four main activities of the Accounts Receivable Department.

b.      Should Blake accept Paypro’s offer to take over its delinquent account activities?