ACTIVITY-BASED SUPPLIER COSTING Webb Computers uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its computers: Component 125X and Component 30Y. Consider two activities: testing and reordering components. After the two components are inserted, testing is done to ensure that the two components in the computer 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 600,000 Reordering components 150,000 II. Supplier Data Alpha Electronics La Paz Company 125X 30Y 125X 30Y Unit purchase price $10 $26 $12 $28 Units purchased 60,000 30,000 7,500 7,500 Failed tests 600 390 5 5 Number of reorders 30 20 0 0 Required:

Determine the cost of each supplier by using ABC.

Cornerstone Exercise