Question

Cornerstone Exercise 11.2 (Algorithmic)
Activity-Based Supplier Costing

Ventana Company is a car window repair and replacement company operating in the after-sales market. Ventana’s purchasing manager uses two suppliers (Jones Glass and Claro Glass) for the source of its passenger car windows. Data relating to side windows (Side) and windshields (WS) are given below.

I. Activity costs

Activity
Adverse buying*	652,500
Supplier returns**	64,900

* Extra cost of purchasing from local car dealer because of insufficient delivery of supplier.
** Windows returned because they were not ordered or because they were defective.

II. Supplier Data

	Jones Glass							Claro Glass
	Side			WS				Side			WS
Unit purchase price		$80			$145				$77			$142
Units purchased		20,000			20,000				40,000			40,000
Insufficient units		1,050			1,050				3,300			3,300
Returned units		475			475				1,000			1,000

Required:

1. Calculate the activity rates for assigning costs to suppliers.

Adverse buying rate	$	per adverse purchase
Supplier return rate	$	per return

2. Calculate the total unit purchasing cost for each component for each supplier. If required, round your answers to the nearest cent.

	Total unit cost
	Jones Glass	Claro Glass
Side	$	$
WS	$	$

Answer 1

1)	Activity costs
	Adverse buying		652500/(1050+1050+3300+3300)
			75	per adverse purchase
	Supplier return rate		64,900/(475+475+1000+1000)
			22	per return
2)				Jones Glass		Claro glass
				side	WS	Side	WS
	Adverse purchases
	75*1050			78750
	75*1050				78750
	75*3300					247500
	75*3300						247500
	Returns
	22*475			10450
	22*475				10450
	22*1000					22000
	22*1000						22000
	total cost			89200	89200	269500	269500
	units			20,000	20,000	40,000	40,000
	units produced			4.46	4.46	6.74	6.74
	unit purchase cost			80.00	145.00	77.00	142.00
	total unit cost			84.46	149.46	83.74	148.74
		jone	Claro
		glass	Glass
	side	84.46	83.74
	WS	149.46	148.74