Question

1. Activity-Based Supplier Costing

   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			75,100				15,000			15,000
   Failed tests	1,900			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:	$	$		$	$

Answer 1

	Cost Per Unit	Cost Per Unit
Testing Components	= 1200000/2700	444.44
Reordering Components	= 300000/100	3000
	Alpha Electronics		La Paz Company
	125X	30Y	125X	30Y
Failed tests	= 1900*444.44	= 780*444.44	= 10*444.44	= 10*444.44
	844,436	346663.2	4444.4	4444.4
Reordering Components	= 60*3000	= 40*3000	0	0
	180000	120000	0	0
Total Cost	1,024,436	466,663	4,444	4,444
Units Purchased	120000	75100	15000	15000
Cost per Unit	8.54	6.21	0.30	0.30
Unit Purchase Price	10	26	12	28
Unit Cost	18.54	32.21	12.30	28.30