Question

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 $1,200,000
Reordering components 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 84,400 15,000 15,000
Failed tests 1,500 780 10 10
Number of reorders 60 40 0 0
Required:
Determine the cost of each supplier by using ABC. Round Test and Reorder rates to the nearest dollar, and final answers to the nearest cent.
Alpha Electronics La Paz Company
125X 30Y 125X 30Y
Unit cost: $ $ $ $

Answer 1

Clearsound

The cost of each supplier, using ABC:

Alpha Electronics La Paz Companyl

125X 30Y 125X 30Y

Unit cost $18.02 $32.24 $12.35 $28.35

Step-by-step explanation:

a) Data and Calculations:

Activity Costs

Testing components $1,200,000

Reordering components $300,000

Total costs = $1,500,000

II. Supplier Data

Alpha Electronics La Paz Company Total

125X 30Y 125X 30Y

Unit purchase price $10 $26 $12 $28

Units purchased 120,000 84,400 15,000 15,000

Total costs of units $1,200,000 $2,194,400 $180,000 $420,000

Failed tests 1,500 780 10 10 2,300

Number of reorders 60 40 0 0 100

Activity Rates:

Failed tests $1,200,000/2,300 = $521.74

Reordering $300,000/100 = $3,000

Alpha Electronics La Paz Companyl

125X 30Y 125X 30Y

Unit purchase price $10 $26 $12 $28

Units purchased 120,000 84,400 15,000 15,000

Total costs of units $1,200,000 $2,194,400 $180,000 $420,000

Testing components 782,610 406,957 5,217 5,217

Reordering 180,000 120,000

Total costs $2,162,610 $2,721,357 $185,217 $425,217

Unit cost $18.02 $32.24 $12.35 $28.35