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: I. 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 Alpha Electronics La Paz Company 125X30Y 125X 30Y $10 $12 $28 Unit purchase price Units purchased $26 60,000 120,000 15,000 15,000 Failed tests 1,200 780 10 10 Number of reorders 60 40 Required: Determine the cost of each supplier by using ABC. Round unit costs to two decimal places. Alpha Electronics 125X 30Y $0 La Paz Company 125x 3 0Y Unit cost: $0 $0 $0

Answer 1

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Clearsound
Workings		A	B	C	D	E	F=B+C+D+E	G=A/F
Calculation of ABC rates	Cost Driver	Cost	Alpha	La Paz
Activity cost pool			125X	30Y	125X	30Y	Total	ABC rates
Testing Components	Number of failed tests	1,200,000.00	1,200.00	780.00	10.00	10.00	2,000.00	600.00
Reordering Components	Number of reorders	300,000.00	60.00	40.00	-	-	100.00	3,000.00
Total Cost assigned		1,500,000.00
		See G	See B	H=B*G	See C	I=C*G	See D	J=D*G	See E	K=E*G
			Alpha	La Paz
Allocation table			125X	30Y	125X	30Y
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned	Activity used	Cost assigned	Activity used	Cost assigned
Testing Components	Number of failed tests	600.00	1,200.00	720,000.00	780.00	468,000.00	10.00	6,000.00	10.00	6,000.00
Reordering Components	Number of reorders	3,000.00	60.00	180,000.00	40.00	120,000.00	-	-	-	-
Total Cost assigned				900,000.00		588,000.00		6,000.00		6,000.00
Units purchased				120,000.00		60,000.00		15,000.00		15,000.00
Activity cost per unit				7.50		9.80		0.40		0.40
Answer	Alpha	La Paz
Cost of each supplier	125X	30Y	125X	30Y	Note
Unit purchase price	10.00	26.00	12.00	28.00
Activity cost per unit	7.50	9.80	0.40	0.40	See allocation table above.
Cost of each supplier	17.50	35.80	12.40	28.40