Russell Company uses Beltran Company and Southern Express Inc. to buy the electronic chip used in the manufacturing of its GPS device. Russell Co. has been using these two companies for several years and would like to cut down to only one supplier to purchase the 1,200,000 chips needed per year. In order to determine which supplier is the most cost-effective, Russell Co. compiled the following data:

Activity Activity Cost

Testing $800,000

Warranty work $3,600,000

Beltran Co. Southern Express Inc.

Unit purchase price $60 $63

Units purchased 865,000 335,000

Testing hours 1,200 550

Warranty hours 5,000 1,400

If required, round your answers to the nearest cent. When required, use rounded amounts in subsequent computations.

1. Calculate the activity rate for each activity.

Testing

Warranty

1. Calculate the cost per chip for each supplier.

Beltran Co.

Southern Express Inc.

3.Which supplier should Russell Company choose?