Question

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*	588,000
Supplier returns**	148,500

* 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		$90			$145				$87			$142
Units purchased		15,000			15,000				35,000			35,000
Insufficient units		900			900				3,300			3,300
Returned units		475			475				2,000			2,000

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) We will first find Total activity incurred

Total insufficient units = 900+900+3300+3300

=8,400

Adverse buying rate = adverse buying cost/insufficient units

=$588,000/8400

=$70 per adverse purchase

Total returned units = 475+475+2000+2000

=4,950 per return

Supplier return rate=supplier return cost/total returned units

$148,500/4950

=$30 per return

(2) Total unit purchasing cost = Total cost/ number of units

Total costs = purchase cost*units+adveres buying rate *insufficient units+supplier return rate*returned units

	Jones Glass	Claro Glass
side	$95.15($90*15000 units+900*$70+$30*475)/15,000	$95.31($87*35,000+3300*$70+2000*$30)/35,000
WS	$150.15($145*15,000+900*$70+475*$30)/15,000 units	$150.31($142*35,000+$70*3300+$30*2000)/35,000