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* Supplier returns** 637,500 82,500 * 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 Unit purchase price Units purchased Insufficient units Returned units Jones Glass Side ws $60 $145 15,000 15,000 750 750 375 375 Claro Glass Side ws $57 $142 30,000 30,000 3,000 3,000 1,500 1,500 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 + 3000 + 3000	7500
Total returned units = 375 + 375 + 1500 + 1500	3750
Adverse buying rate = Adverse buying cost / Total insufficient units = 637500 / 7500	85	per adverse purchase
Supplier return rate = Supplier return cost / Total returned units = 82500 / 3750	22	per return

Required 2 :
Allocation of activity cost :
	Jones Glass		Claro Glass
	Side	WS	Side	WS
Adverse buying cost	63750 [ 750*85 ]	63750 [ 750*85 ]	255000 [ 3000*85 ]	255000 [ 3000*85 ]
Supplier returns cost	8250 [ 375*22 ]	8250 [ 375*22 ]	33000 [ 1500*22 ]	33000 [ 1500*22 ]
Total activity cost	72000	72000	288000	288000
(/) Units purchased	15000	15000	30000	30000
Activity cost per unit	4.80	4.80	9.60	9.60

	Total unit cost [ Unit purchase price + Activity cost per unit ]
	Jones Glass	Claro Glass
Side	64.80 [ 60 + 4.80 ]	66.60 [ 57 + 9.60 ]
WS	149.80 [ 145 + 4.80 ]	151.60 [ 142 + 9.60 ]