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*	768,000
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		900			900				3,900			3,900
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

Answer

--Requirement 1

Activity	Cost	Activity Driver		Activity rates
Adverse Buying	$768,000	9600	insufficient units	$80.00
Supplier Returns	$71,500	2750	returned units	$26.00

--Requirement 2

Total unit cost
	Jones Glass	Claro Glass
Side [Purchase price + Allocated cost]	$85.45	$88.27
WS [Purchase price + Allocated cost]	$140.45	$143.27

--Workings

Jones Glass		Side		WS
	Activity rates	Driver	Cost allocated	Driver	Cost allocated
Adverse Buying	$80	900	$72,000	900	$72,000
Supplier Returns	$26	375	$9,750	375	$9,750
		Total	$81,750	Total	$81,750
		Units	15000	Units	15000
		Allocated cost per unit	$5.45	Allocated cost per unit	$5.45
Claro Glass		Side		WS
	Activity rates	Driver	Cost allocated	Driver	Cost allocated
Adverse Buying	$80	3900	$312,000	3900	$312,000
Supplier Returns	$26	1000	$26,000	1000	$26,000
		Total	$338,000	Total	$338,000
		Units	30000	Units	30000
		Allocated cost per unit	$11.27	Allocated cost per unit	$11.27