Question

Calculator eBook Show Me How ACCIVILY-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 30Y. 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 Reordering components $1,200,000 300,000 II. Supplier Data Alpha Electronics La Paz Company 125X 30Y 125X 30Y Unit purchase price $10 $26 $12 $28 Units purchased 120,000 15,000 15,000 60,000 780 Failed tests 1,200 10 Number of reorders 60 Required: Determine the cost of each supplier by using ABC. Round unit costs to two decimal places. La Paz Company Alpha Electronics 125X 30Y 1.50 x $ 1.46 125X 0.00 3 0Y 0.00 X Unit cost: $ $ $ Check My Work < Previous Next

Answer 1

	Alpha Electronics		La Paz Company
Activity Cost Pool	125X	30Y	125X	30Y
Unit cost      [Refer working note 1]	$17.50	$35.80	$12.40	$28.40

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Working note 1 - Cost per unit
	Alpha electronics		La Paz Company
	125X	30Y	125X	30Y
Unit purchase price                                                         (a)	$10.00	$26.00	$12.00	$28.00
Overhead cost per unit [Refer working note 2]               (b)	$7.50	$9.80	$0.40	$0.40
Unit cost                                                                            (a + b)	$17.50	$35.80	$12.40	$28.40

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Working note 2 - Overhead cost per unit
	Alpha electronics		La Paz Company
	125X	30Y	125X	30Y
Total overhead assigned   [Refer working note 3]        (a)	900,000	588,000	6,000	6,000
Units purchased                                                            (b)	120,000	60,000	15,000	15,000
Overhead cost per unit                                               (a / b)	7.50	9.80	0.40	0.40

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Working note 3 - Allocation of Overhead to each product using activity rates:

Alpha Electronics

La Paz Company

Activity Cost Pool

Activity Rate [Refer working note 4]

125X

30Y

125X

30Y

Activity

Overhead assigned

Activity

Overhead assigned

Activity

Overhead assigned

Activity

Overhead assigned

(a)

(b)

(a x b)

(c)

(a x c)

(d)

(a x d)

(e)

(a x e)

Testing components

$600

per failed test

1,200

failed tests

$720,000

780

failed tests

$468,000

10

failed tests

$6,000

10

failed tests

$6,000

Reordering components

$3,000

per re-order

60

re-orders

$180,000

40

re-orders

$120,000

0

re-orders

$0

0

re-orders

$0

Total overhead assigned

$900,000

$588,000

$6,000

$6,000

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Working note 4 - Calculation of Activity rate
Activity Cost Pool	Expected Overhead Cost (a)	Expected Activity (b)		Activity rate (a / b)
Testing components	$1,200,000	2,000 [1,200 + 780 + 10 + 10]	failed tests	$600	per failed test
Reordering components	$300,000	100 [60 + 40 + 0 + 0]	re-orders	$3,000	per re-order