Problem 12 - Accounting

Question

One of the operations in the U.S. Post Office is a mechanical mail sorting operation. In this operation, letter mail is sorted at a rate of one letter per second. The letter is mechanically sorted from a three-digit code input by an operator sitting at a keyboard. The manager of the mechanical sorting operation wishes to determine the number of temporary employees to hire for December. The manager estimates that there will be an additional \(34,560,000\) pieces of mail in December, due to the upcoming holiday season. Assume that the sorting operators are temporary employees. The union contract requires that temporary employees be hired for one month at a time. Each temporary employee is hired to work 150 hours in the month. a. How many temporary employees should the manager hire for December? b. If each employee earns a standard \(\$ 18\) per hour, what would be the labor time variance if the actual number of letters sorted in December was \(33,840,000\) ?

Step-by-Step Solution

Answer

a. 64 temporary employees are needed. b. The labor time variance is $3600.

Step 1: Calculate total sorting hours needed

First, we need to determine how many total hours are required to sort the additional pieces of mail. Since mail is sorted at a rate of one letter per second, we first convert the total number of pieces to seconds. The manager estimates an additional mailing amount of 34,560,000 pieces.To find the hours:\[\text{Total Seconds} = 34,560,000 \text{ letters}\]Since there are 3600 seconds in an hour:\[\text{Total Hours} = \frac{34,560,000}{3600} = 9600 \text{ hours}\]

Step 2: Calculate employees needed

Next, we find out how many employees are needed. Each employee works 150 hours in a month. Hence, the number of employees needed is:\[\text{Number of Employees} = \frac{9600}{150} \]So:\[\text{Number of Employees} = 64\]

Step 3: Calculate potential variance in labor costs

Now, we find the labor time variance based on the actual number of letters sorted. The actual sorted number is 33,840,000 letters. Convert this to hours:\[\text{Actual Hours} = \frac{33,840,000}{3600} = 9400 \text{ hours}\]Calculate the variance in hours:\[\text{Variance in hours} = 9600 - 9400 = 200 \text{ hours}\]Since each hour costs \(18:\[\text{Labor Time Variance} = 200 \times 18 = \\) 3600\]

Key Concepts

Labor Variance

Understanding labor variance is important for managing costs within an operation like the mechanical mail sorting operation at the U.S. Post Office. Labor variance refers to the difference between the expected labor cost and the actual labor cost. This variance can occur due to differences in hours worked or changes in labor rates. In this specific scenario, labor time variance is calculated based on the number of letters sorted compared to what was expected. Here are some important points:

• Expected hours were calculated by predicting a certain volume of mail to sort.
• The actual hours worked turned out to be less if fewer letters were sorted than planned, resulting in a labor variance.
• Labor variance helps management understand efficiency and adjust budgets accordingly.

In the given example, the variance of 200 hours resulted because fewer letters were sorted. Multiplied by the wage rate of $18, this led to a $3,600 variance, meaning labor costs were $3,600 less than expected due to the lesser workload. Efficient management of labor variance can lead to cost savings and better resource allocation.

Temporary Employees

Temporary employees are often used to meet seasonal demand, such as the holiday rush at a mail sorting facility. These employees give businesses flexibility when managing variations in workload. Some key things to know about temporary employees include:

• They are typically hired for short periods, like one month, which provides the flexibility to adjust staff levels quickly.
• Costs associated with temporary employees, such as wages and training, should be considered in budgeting and planning.
• Although not permanent, they require proper training to perform tasks efficiently, ensuring optimal productivity.

In the mechanical mail sorting scenario, temporary employees are hired to handle the December surge. They work 150 hours per month. Strategic hiring of these employees helps meet increased demand without the long-term commitment and costs of permanent hires, while ensuring that operations continue smoothly.

Mail Sorting Operation

A mail sorting operation involves categorizing mail efficiently and accurately. In the U.S. Post Office's mechanical mail sorting, letters are sorted rapidly via an automated system based on a three-digit code entered by an operator. Key components of this operation include:

• The efficiency of sorting, which is one letter per second in this case, with massive throughput.
• Automation, which reduces manual effort and increases sorting speed.
• The role of human operators, who manage the input that guides the sorting machinery.

This kind of operation is especially crucial during peak times like holidays when mail volumes significantly increase. Planning such as hiring additional temporary workers ensures that all mail is processed quickly, maintaining the reliability of postal services. Ensuring this efficiency requires both accurate forecasting of mail volumes and a well-prepared workforce to handle the machinery and variations in workload.