Question

Clearound uses Alpha Electronics and La Paz Company to buy the electronic components used in the manufacture of its cell phones Component 125X and Component 30. Consider to activities, testing components reordering components. After the two components are inserted, testing is done to ensure that the two components in the phones are working property. Reordering occurs because one or both of the components have test and it is necessary to replenish component inventaries. Activity cost information and other data needed for supplier costing are as follows: 1. Activity Costs Caused by Suppliers (esting failures and ordering asares) Activity Costs Testing components $1,200,000 Reordering components 300.000 11. Supplier Data Alpha Electronics Unit purchase price $10 $26 1.000 Unit Durchased 120.000 Failed tests N ber of readers Required: Determine the t eacher by ABC Rounded Readers to the rest Alpha Electronics Le Par Company Boy 125% OY

Answer 1

	Alpha Electronics		La Paz Company
Activity Cost Pool	125X	30Y	125X	30Y
Unit cost      [Refer working note 1]	$18.43	$31.93	$12.31	$28.31

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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)	$8.43	$5.93	$0.31	$0.31
Unit cost                                                                            (a + b)	$18.43	$31.93	$12.31	$28.31

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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)	1,011,600	480,360	4,620	4,620
Units purchased                                                            (b)	120,000	81,000	15,000	15,000
Overhead cost per unit                                               (a / b)	8.43	5.93	0.31	0.31

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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

$462

per failed test

1,800

failed tests

$831,600

780

failed tests

$360,360

10

failed tests

$4,620

10

failed tests

$4,620

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

$1,011,600

$480,360

$4,620

$4,620

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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	2,600 [1,800 + 780 + 10 + 10]	failed tests	$462	per failed test
Reordering components	$300,000	100 [60 + 40 + 0 + 0]	re-orders	$3,000	per re-order