Question
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:
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. (Note: Round answer to the nearest dollar.)
| a. | $255 per hour | |
| b. | $262 per hour | |
| c. | $287 per hour | |
| d. | $268 per hour | |
| e. | $264 per hour |
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