Process Activity Analysis

The procurement process for Jarom Wholesale Company includes a series of activities that transforms a materials requisition into a vendor payment. 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 40% of the time, initiating effort to reconcile the differences. Once the three documents agree, a payment is made. The process can be diagrammed as follows:

An activity analysis indicated the following activity costs with this process:

Preparing materials request	$32,000
Requesting, receiving, and selecting vendor bids	92,000
Preparing purchase order	20,000
Preparing receiving ticket	24,000
Matching M/R, R/T, and invoice	52,000
Correcting reconciliation differences	148,000
Preparing and delivering vendor payment	32,000
Total process activity cost	$400,000

On average, the process handles 10,000 individual requests for materials that result in 10,000 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 75%. 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 40% to 10%, over an average of 10,000 payments.

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a. Develop a table showing the percent of individual activity cost to the total process cost.

Jarom Wholesale Company Individual activity cost to the total process cost blank

Procurement Activities	Activity Cost	Percent of Total Process Cost
Preparing materials request	$fill in the blank c9ca0efec050ffc_1	fill in the blank c9ca0efec050ffc_2%
Requesting, receiving, and selecting vendor bids	fill in the blank c9ca0efec050ffc_3	fill in the blank c9ca0efec050ffc_4%
Preparing purchase order	fill in the blank c9ca0efec050ffc_5	fill in the blank c9ca0efec050ffc_6%
Preparing receiving ticket	fill in the blank c9ca0efec050ffc_7	fill in the blank c9ca0efec050ffc_8%
Matching M/R, R/T, and invoice	fill in the blank c9ca0efec050ffc_9	fill in the blank c9ca0efec050ffc_10%
Correcting reconciliation differences	fill in the blank c9ca0efec050ffc_11	fill in the blank c9ca0efec050ffc_12%
Preparing and delivering vendor payment	fill in the blank c9ca0efec050ffc_13	fill in the blank c9ca0efec050ffc_14%
Total process activity cost	$fill in the blank c9ca0efec050ffc_15	fill in the blank c9ca0efec050ffc_16%

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a. Using the cost of the activities, divide individual activity cost by total process costs to obtain a percent of total process cost. Which are most significant? Which are candidates for improvement?

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b. Determine the average total process cost per vendor payment, assuming 10,000 payments. $fill in the blank df82130b2f86016_1 per vendor payment

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b. A process activity analysis can be used to determine the per unit cost of a claim based on the total costs of all of the activities involved in processing each claim.

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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".

Jarom Wholesale Company Changes in activity costs blank

Procurement Activities	Activity Cost Prior to Improvement	Activity Cost After Improvement	Activity Cost Savings
Preparing materials request	$fill in the blank d68ac5ff9041fea_1	$fill in the blank d68ac5ff9041fea_2	$fill in the blank d68ac5ff9041fea_3
Requesting, receiving, and selecting vendor bids	fill in the blank d68ac5ff9041fea_4	fill in the blank d68ac5ff9041fea_5	fill in the blank d68ac5ff9041fea_6
Preparing purchase order	fill in the blank d68ac5ff9041fea_7	fill in the blank d68ac5ff9041fea_8	fill in the blank d68ac5ff9041fea_9
Preparing receiving ticket	fill in the blank d68ac5ff9041fea_10	fill in the blank d68ac5ff9041fea_11	fill in the blank d68ac5ff9041fea_12
Matching M/R, R/T, and invoice	fill in the blank d68ac5ff9041fea_13	fill in the blank d68ac5ff9041fea_14	fill in the blank d68ac5ff9041fea_15
Correcting reconciliation differences	fill in the blank d68ac5ff9041fea_16	fill in the blank d68ac5ff9041fea_17	fill in the blank d68ac5ff9041fea_18
Preparing and delivering vendor payment	fill in the blank d68ac5ff9041fea_19	fill in the blank d68ac5ff9041fea_20	fill in the blank d68ac5ff9041fea_21
Total process activity cost	$fill in the blank d68ac5ff9041fea_22	$fill in the blank d68ac5ff9041fea_23	$fill in the blank d68ac5ff9041fea_24

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c. Management can use process activity analysis to improve a process. How does the change that management proposes improve efficiency or eliminate unnecessary activities? Determine the difference between the costs of Requirement (a) and the claim activities after the changes.

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d. Estimate the average cost per vendor payment, assuming that the changes proposed by management are enacted for 10,000 total payments. $fill in the blank b78fcb0c8f9dfcc_1 per vendor payment