Activity-Based Supplier Costing

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 66,500 15,000 15,000

Failed tests 1,300 780 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: $ $ $ $