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*	648,000
Supplier returns**	71,500

* 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		$80			$135				$77			$132
Units purchased		15,000			15,000				30,000			30,000
Insufficient units		750			750				3,300			3,300
Returned units		375			375				1,000			1,000

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

Required 1 :
Total insufficient units = 750 + 750 + 3300 + 3300	8100
Total returned units = 375 + 375 + 1000 + 1000	2750
Adverse buying rate = Adverse buying cost / Total insufficient units = 648000 / 8100	80	per adverse purchase
Supplier return rate = Supplier return cost / Total returned units = 71500 / 2750	26	per return

Required 2 :
Allocation of activity cost :
	Jones Glass		Claro Glass
	Side	WS	Side	WS
Adverse buying cost	60000 [ 750*80 ]	60000 [ 750*80 ]	264000 [ 3300*80 ]	264000 [ 3300*80 ]
Supplier returns cost	9750 [ 375*26 ]	9750 [ 375*26 ]	26000 [ 1000*26 ]	26000 [ 1000*26 ]
Total activity cost	69750	69750	290000	290000
(/) Units purchased	15000	15000	30000	30000
Activity cost per unit	4.65	4.65	9.67	9.67

	Total unit cost [ Unit purchase price + Activity cost per unit ]
	Jones Glass	Claro Glass
Side	84.65 [ 80+4.65 ]	86.67 [ 77+9.67 ]
WS	139.65 [ 135+4.65 ]	141.67 [ 132+9.67 ]