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. 1. Activity costs Activity Adverse buying" Suppler returns 609,000 77,000 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. 11. Supplier Data Jones Glass Claro Glass Side WS Side Unit purchase price Units purchased Insufficient units Returned units $70 15,000 750 375 5135 15,000 750 375 $67 35,000 3,600 1,000 $132 35,000 3.0 1,000 Required: 1. Calculate the activity rates for assigning costs to suppliers. Adverse buying rate 5 per adverse purchase

Answer 1

Required 1 :
Total insufficient units = 750 + 750 + 3600 + 3600	8700
Total returned units = 375 + 375 + 1000 + 1000	2750
Adverse buying rate = Adverse buying cost / Total insufficient units = 609000 / 8700	70	per adverse purchase
Supplier return rate = Supplier return cost / Total returned units = 77000 / 2750	28	per return

Required 2 :
Allocation of activity cost :
	Jones Glass		Claro Glass
	Side	WS	Side	WS
Adverse buying cost	52500 [ 750*70 ]	52500 [ 750*70 ]	252000 [ 3600*70 ]	252000 [ 3600*70 ]
Supplier returns cost	10500 [ 375*28 ]	10500 [ 375*28 ]	28000 [ 1000*28 ]	28000 [ 1000*28 ]
Total activity cost	63000	63000	280000	280000
(/) Units purchased	15000	15000	35000	35000
Activity cost per unit	4.20	4.20	8.00	8.00

	Total unit cost [ Unit purchase price + Activity cost per unit ]
	Jones Glass	Claro Glass
Side	74.20 [ 70+4.20 ]	75.00 [ 67+8 ]
WS	139.20 [ 135+4.20 ]	140.00 [ 132+8 ]