Assume that the accounts payable department of a company has 5 clerks; each one is paid $25,000 per year ($125,000 total clerical salaries). On average, the clerks spend:
20% of their time on processing payments30% of their time matching invoices, receiving documents, and billing statement
50% of their time correcting errors in the various documents
In addition, long distance telephone costs of $1,700 are directly traced to the activity "correcting errors."
Definitions:
Producer Surplus
The difference between the amount a producer receives from the sale of a product and the minimum amount they would be willing to accept for that product; essentially a measure of producer profitability and well-being.
Market Price
The existing cost for acquiring or disposing of an asset or service in a designated market.
Competitive Market
A market structure characterized by many buyers and sellers, freedom of entry and exit, and products that are similar, leading to competition driving prices to equilibrium.
Lowest Price
the minimum price at which a product or service is offered in the market.
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