Question

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			76,100				15,000			15,000
Failed tests	1,700			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

Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.

Each activity rate needs to be multiplied with the number of activities to get total cost in each product as and added to purchase cost to arrive at the cost per unit as:

Formulas=