Fabulous Enterprises manufactures modular kitchens and bathrooms and the Managing Director, Labibah Burki is concerned that the total number of suppliers has increased from 20 to 60 over the past three years. He is sure that this is inefficient and has asked you as the new management accountant to investigate this. You have decided to undertake an activity-based analysis of supplier costs and supplier performance, and will focus initially on the four suppliers of wall and floor tiles.

After much discussion with managers and an analysis of costs and activities over the past year, you have isolated supplier-related activities, identified activity drivers, and estimated the cost per unit of activity driver:

Activity

Cost per unit of activity driver

Order material

$200 per order

Receive materials

$1500 per delivery

Inspect order

$250 per delivery

Return materials to supplier

$210 per return

Downtime due to late delivery

$260 per hour

Rework due to low quality tiles

$50 per hour

Pay supplier

$190 per invoice

Dispute invoiced amount

$480 per dispute

Over the past year, the four suppliers of tiles consumed the following number of activities:

Activity

A

B

C

D

Order material

20

50

30

10

Receive materials

20

80

10

20

Inspect order

5

25

5

0

Return materials to supplier

3

8

0

0

Downtime due to late delivery

20

60

10

10

Rework due to low quality tiles

11

10

0

0

Pay supplier

12

48

12

10

Dispute invoiced amount

2

0

13

2

A supplier relationship manager is employed to manage a range of suppliers, at a salary of $90 000. The proportion of her time that she spends managing tiling suppliers is as follows:

10 per cent on supplier A;

15 per cent on supplier B;

10 per cent on supplier C;

5 per cent on supplier D.

The cost of material purchased from each supplier over the past year was as follows:

A $60 000;

B $120 000;

C $70 000; and

D $30 000.

Required:

1.Calculate the total cost of ownership and the supplier performance index, for each of the four suppliers.

[Answer and show workings here]

2.Discuss the relative performance of each supplier.

[Answer here]