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Clinton Corp Materials Usage Has a Rate of $5 Per Part and It

question 22

Multiple Choice

Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. The current activity capacity and demand for the 30-unit configuration and expected activity demand for the 9-part configuration are provided below:
$\begin{array}{|l|l|c|c|c|}\hline\text { Activities } & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected }\\&\text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand }\\\hline \begin{array}{l}\text { Materials } \\\text { usage }\end{array} & \begin{array}{l}\text { number } \\\text { of parts }\end{array} & 300,000 & 300,000 & 90,000 \\\hline \text { Assembly } & \begin{array}{l}\text { direct } \\\text { labour } \\\text { hours }\end{array} & 20,000 & 20,000 & 6,000 \\\hline \begin{array}{l}\text { Purchasing } \\\text { parts }\end{array} & \begin{array}{l}\text { number } \\\text { of orders }\end{array} & 20,000 & 16,000 & 8,000 \\\hline\end{array}$ Materials usage has a rate of $5 per part and no fixed costs.Assembly has a rate of $20 per labour hour with no fixed component.Purchasing requires clerks who can process 5,000 purchase orders.Each clerk earns $40,000 per year.There is also a $1 per order processing cost.
-Refer to the figure.What is the cost savings from purchasing parts?

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