Question

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 307. 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) Costs Activity Testing components Reordering components $1,200,000 300,000 IL Supplier Data Alpha Electronics La Paz Company 125x 30Y 125X 30Y Unit purchase price $10 $26 $12 15,000 Units purchased Failed tests Number of reorders 120,000 1,900 75,900 780 60 40 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 125X 30Y La Paz Company 125x 307 Unit cost: 5

Answer 1

	Particulars	Alpha Electronics		La Paz Company
		125X	30Y	125X	30Y
	Units purchased	120,000	75,900	15,000	15,000
	Purchase Price per unit	10	26	12	28
	Total purchase price	1,200,000	1,973,400	180,000	420,000
Add:	Cost of testing components	844,444	346,667	4,444	4,444
		1200000*(1900/2700)	1200000*(780/2700)	1200000*(10/2700)	1200000*(10/2700)
Add:	Cost of reordering components	180,000	120,000	0	0
		300000*(60/100)	300000*(40/100)
	Total cost	2,224,444	2,440,067	184,444	424,444
	Unit cost	18.54	32.15	12.30	28.30