Question

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 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: 1. 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 La Paz Company 125X 30Y Unit purchase price 528 Alpha Electronics 125X 30Y $10 $26 120,000 69,900 1,400 780 60 Units purchased $12 15,000 10 15,000 Failed tests 10 Number of reorders 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.

Answer 1

	Alpha Electronics		La Paz Company
	125X	30Y	125X	30Y
Purchase component	($10 * 120000) =$1200000	($26 * 69900) =$1817400	($12 * 15000) =$180000	($28 * 15000) =$420000
Testing components	($1200000/2200 * 1400) =$763636	($1200000/2200 * 780) =$425454	($1200000/2200 * 10) =$5455	($1200000/2200 * 10) =$5455
Reordering components	($300000/100 * 60) =$180000	($300000/100 * 40) =$120000	-	-
Total cost (A)	$2143636	$2362854	$185455	$425455
Units (B)	120000	69900	15000	15000
Unit cost (A/B)	$17.86	$33.80	$12.36	$28.36

Testing component = $1200000/2200 =