This memo is in response to the views of the Inglis University Library donations department. The idea of the this case is to help readers develop a better understanding of what the donations department of the library are being used for and what the effects are of those decisions. For example, the donations can be used to hire part-time employees to help keep up with the growing number of books. However, the increase in books and profit has increased unit cost that was claimed to be already too high. The case helps to comprehend cost concepts and how to organize it into data for proper analysis. This memo will explain how to analyze and evaluate the costs and then explain the results in a managerial way whether or not the additional funds should be rejected.
Cost Driver and Relevant Range
The activity cost driver is a factor that affects expenses of a certain operation by driving the prices of a certain activity. Appropriate cost drivers for analyzing the cost structure would include the portion of the general facility costs for the space provided from the library for donation activities and most importantly radio frequency identification (RFID) inventory tags. There is also the computerized system for the library’s catalogue system and the salaries of workers to keep up with the growing number of books. To justify my answer think about the RFID that is placed on each book so that it can be tracked to know whether or not it has been checked out or is still available. This alone drives up the cost of each book. Relevant range also becomes important to mention because it is the specific activity level that has a minimum and maximum boundary for everything to flow properly and keep costs the same. The appropriate workload for the number of workers present is 1,000-1,200 books, which would be the current relative range of activity. As the number of books continues to grow to 1,900 or 2,000, salary costs, the number of RFID tags, and utilities would all increase making the variable costs of these books much higher than even before. This is why it is important to look at the relevant range during the analysis process.
Appendix A shows the costs associated with the donation department and each cost is classified as a fixed or variable cost, direct or indirect, and flexible or committed. Fixed costs are costs that do not change and are set in stone, while variable costs change and fluctuate depending on activity. Salary, stipend, and facility costs are fixed and the RFID tags were variable costs as shown in Appendix A. If the activity moved outside the relative range listed above then these classifications would be different. More activity would require salaries and facility costs to become variable due to the increase in books. Salaries would go up and the use of the building would increase. The next classification is between direct and indirect costs. Direct costs are directly related materials that can be traced and...