Exercise $19\mathrm{.}4($Static$)$ Activity$-$Based Management $($LO$19-3)$

Blake Furniture, Incorporated, 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 Department. 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:

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, Incorporated, has proposed that it can perform all the activities related to

collecting delinquent 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 delinquent 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.

Required:

a$.$ Using the information given, prepare an activity table to calculate the labor cost for

personnel devoted to each of the four main activities of the Accounts Receivable

Department.

b$.$ Should Blake accept or reject Paypro's offer to take over its delinquent account

activities?