Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units.

I. Activity Data

Activity Cost

Inspecting components (sampling only)

$ 210,000

Reworking products (due to failed component)

$2,454,000

Warranty work (due to failed component)

$1,923,000

II. Supplier Data

Hydra

Parable

International

Company

Unit purchase price

$12.00

$10.00

Units purchased

19,000

76,000

Sampling hours

60

2,600

Rework hours

150

3,800

Warranty hours

550

7,000

Calculate the activity rate for warranty work based on warranty hours.