Question

Activity-Based Supplier Costing Clearsound uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its cell phones: Component 125X and Component 30Y. Consider two activities: testing components and reordering components. After the two components are inserted, testing is done to ensure that the two components in the phones are working properly. Reordering occurs because one or both of the components have failed the test and it is necessary to replenish component inventories. Activity cost information and other data needed for supplier costing are as follows: I. Activity Costs Caused by Suppliers (testing failures and reordering as a result) Activity Costs Testing components $1,200,000 Reordering components 300,000 II. Supplier Data Alpha Electronics La Paz Company 125X 30Y 125X 30Y Unit purchase price $10 $26 $12 $28 Units purchased 120,000 79,100 15,000 15,000 Failed tests 1,900 780 10 10 Number of reorders 60 40 0 0 Required: Determine the cost of each supplier by using ABC. Round Test and Reorder rates to the

nearest dollar, and final answers to the nearest cent. Alpha Electronics La Paz Company 125X 30Y 125X 30Y Unit cost: $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 $fill in the blank 4

Answer 1

Req.1

	125X	30Y	125X	30Y
Unit cost	$18.53	$31.90	$12.29	$28.29

Explanation:

1) Activity Rates:

Activity Cost Pool	Estimated Total Cost ( A)	Activity Drivers(B)	Rate Per Activit( A÷B)		Working
Testing	$ 1,200,000	2700	$ 444	Per Test	(1900+780+10+10)
Recording	$300,000	100	$3000	Per Recorder	(60+40+0+0)

2) Activity Allocation:

Testing:

	125 X	30Y	125X	30Y
Rate(a)	$ 444	$444	$444	$444
No of Activity ( b)	1900	780	10	10
Total Cost ( a *b)	$ 843,600	$346,320	$4,400	$4,400

Recording

	125 X	30Y	125X	30Y
Rate(a)	$ 3000	$3000	$3000	$3000
No of Activity ( b)	60	40	0	0
Total Cost ( a *b)	$ 180,000	$120,000	$0	$0

3) Total Cost Per Unit:

	125 X	30Y	125X	30Y
Testing	$ 843,600	$346,320	$4400	$4400
No of Activity	180,000	$120,000	0	0
Total Cost ( a)	$ 1,023,600	$466,320	$4,400	$4,400
÷ No of Units( b)	120,000	79,100	15,000	15,000
Cost PU ( a÷ b)	$8.53	$5.90	$0.29	$0.29
Add: Purchase Price Per Unit	10	$26	$12	$28
Total Cost	$18.53	$31.9	$12.29	$28.29