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*	546,000
Supplier returns**	74,100

* 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		$60			$145				$57			$142
Units purchased		15,000			15,000				35,000			35,000
Insufficient units		900			900				3,000			3,000
Returned units		425			425				1,000			1,000

Required:

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

Adverse buying rate	$fill in the blank 1	per adverse purchase
Supplier return rate	$fill in the blank 2	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	$fill in the blank 3	$fill in the blank 4
WS	$fill in the blank 5	$fill in the blank 6

Answer 1

1)
	Activity rate
Adverse buying     = Total Activity Costs / Total Insufficient units     = $ 546,000 / ( 900 +900 + 3,000 + 3,000 )     =   $ 546,000 / 7,800	$ 70	per adverse purchase
Supplier return rate      = Total Activity Costs / Total Returned units     = $ 74,100 / ( 425 + 425 + 1,000 + 1,000 )     =   $ 74,100 / 2,850	$ 26	per return

	Jones Glass	Claro Glass
Side	$ 64.94	$ 63.74
WS	$ 149.94	$ 148.74

	Jones Glass	Jones Glass	Claro Glass	Claro Glass
	Side	WS	Side	WS
Adverse Purchases @ $ 70	$ 63,000 ( 900 x $ 70)	$ 63,000 ( 900 x $ 70)	$ 210,000 ( 3,000 x $ 70)	$ 210,000 ( 3,000 x $ 70)
Total Returns @ 26	$ 11,050 ( 425 x $ 26)	$ 11,050 ( 425 x $ 26)	$ 26,000 ( 1,000 x $ 26 )	$ 26,000 ( 1,000 x $ 26 )
Total Cost	$ 74,050	$ 74,050	$ 236,000	$ 236,000
/ No. of Units purchased	15,000	15,000	35,000	35,000
Unit Cost	$ 4.94	$ 4.94	$ 6.74	$ 6.74
Unit purchase price	$ 60	$ 145	$ 57	$ 142
Total unit purchasing cost	$ 64.94	$ 149.94	$ 63.74	$ 148.74