Question

Cornerstone Exercise 11.2 (Algorithmic)
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.

I. Activity costs

Activity
Adverse buying*	697,500
Supplier returns**	74,100

* 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.

II. Supplier Data

	Jones Glass							Claro Glass
	Side			WS				Side			WS
Unit purchase price		$70			$145				$67			$142
Units purchased		20,000			20,000				30,000			30,000
Insufficient units		1,050			1,050				3,600			3,600
Returned units		425			425				1,000			1,000

Required:

1. Calculate the activity rates for assigning costs to suppliers.

Adverse buying rate	$	per adverse purchase
Supplier return rate	$	per return

2. Calculate the total unit purchasing cost for each component for each supplier. If required, round your answers to the nearest cent.

	Total unit cost
	Jones Glass	Claro Glass
Side	$	$
WS	$	$

Answer 1

Required 1 :
Total insufficient units = 1050 + 1050 + 3600 + 3600	9300
Total returned units = 425 + 425 + 1000 + 1000	2850
Adverse buying rate = Adverse buying cost / Total insufficient units = 697500 / 9300	75	per adverse purchase
Supplier return rate = Supplier return cost / Total returned units = 74100 / 2850	26	per return

Required 2 :
Allocation of activity cost :
	Jones Glass		Claro Glass
	Side	WS	Side	WS
Adverse buying cost	78750 [ 1050*75 ]	78750 [ 1050*75 ]	270000 [ 3600*75 ]	270000 [ 3600*75 ]
Supplier returns cost	11050 [ 425*26 ]	11050 [ 425*26 ]	26000 [ 1000*26 ]	26000 [ 1000*26 ]
Total activity cost	89800	89800	296000	296000
(/) Units purchased	20000	20000	30000	30000
Activity cost per unit	4.49	4.49	9.87	9.87

	Total unit cost [ Unit purchase price + Activity cost per unit ]
	Jones Glass	Claro Glass
Side	74.49 [ 70+4.49 ]	76.87 [ 67+9.87 ]
WS	149.49 [ 145+4.49 ]	151.87 [ 142+9.87 ]