In: Accounting
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 | 67,300 | 15,000 | 15,000 | |||||||||
Failed tests | 1,400 | 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: |
Explanjation-
First the activity cost must be divided by cost drivers, in order to arrive at cost per failed test and cost per number of reorder.
Then on the basis of these rate the total activity cost is divided on each product.
The total of the cost is calculated and divided by no. of units Purchased.
You are requested to analyse the problem and comment for any query or additional explanation,
Thanks,