Question

Test Company identified the following activities related to purchasing components from suppliers.

Activity	Cost Driver	Activity Rate
Receiving	Number or orders	$200 per order
Inspecting	Inspection hours	$50 per hour

Test Company reported the following information related on one of its suppliers.

	Supplier A
Components purchased	100,000 units
Purchase price	$10 per unit
Number of orders	100
Inspection hours	500

Q1. Calculate the unit cost of components purchased from Supplier A.

Note: Give your answer using dollar signs and round your answer to the nearest cent.

Example: $12.34

Q2. Suppose Test Company places smaller, more frequent orders so that the number of orders increases to 200 and the number of inspection hours decreases to 400.

Calculate the revised unit cost of components purchased from Supplier A.

Note: Give your answer using dollar signs and round your answer to the nearest cent.

Example: $12.34

Answer 1

1.

Total Purchase Price (100000*$10)	1000000
Add: Receiving Cost (100*$200)	20000
Add: inspecting cost (500*$50)	25000
Total cost of purchase	1045000
/ Units purchased	100000
unit cost of components purchased	10.45

2.

Total Purchase Price (100000*$10)	1000000
Add: Receiving Cost (200*$200)	40000
Add: inspecting cost (400*$50)	20000
Total cost of purchase	1060000
/ Units purchased	100000
unit cost of components purchased	10.60