Tigra Company manufactures engines. Tigra produces all the parts necessary for its engines except for one electronic component, which is purchased from two local suppliers: Customer 1 and Customer 2. Both suppliers are reliable and rarely deliver late; however, Customer 1 sells the component for $10.00 per unit and Customer 2 sells the same component for $8.95. Hamilton purchases 70% of its components from Customer 2 because of the lower price. The total annual demand is 75,000 units.
I. Activity Data
$\begin{array}{ll}
\text { Inspecting components (sampling only) } & \$ 190,000 \
\text { Reworking products (due to failed component) } & \$ 2,254,000 \
\text { Warranty work (due to failed component) } & \$ 1,723,000
\end{array}$
II. Supplier Data
$\begin{array}{lrr}&\text { Customer } 1&\text { Customer } 2\
\text { Units Purchase Price } & \$ 10.00 & \$ 8.95 \
\text { Units Purchased } & 22,500 & 52,500 \
\text { Sampling Hours } & 50 & 2,450 \
\text { Rework Hours } & 135 & 3,625 \
\text { Warranty Hours } & 475 & 6,000
\end{array}$
-Refer to the Figure.What is the total activity cost per component associated with using Customer 1 as the supplier?
A)$10.00
B)$15.75
C)$19.38
D)$20.00

Question

Tigra Company manufactures engines. Tigra produces all the parts necessary for its engines except for one electronic component, which is purchased from two local suppliers: Customer 1 and Customer 2. Both suppliers are reliable and rarely deliver late; however, Customer 1 sells the component for $10.00 per unit and Customer 2 sells the same component for $8.95. Hamilton purchases 70% of its components from Customer 2 because of the lower price. The total annual demand is 75,000 units.
 I. Activity Data
$\begin{array}{ll}
\text { Inspecting components (sampling only) } & \$ 190,000 \
\text { Reworking products (due to failed component) } & \$ 2,254,000 \
\text { Warranty work (due to failed component) } & \$ 1,723,000
\end{array}$
II. Supplier Data
$\begin{array}{lrr}&\text { Customer } 1&\text { Customer } 2\
\text { Units Purchase Price } & \$ 10.00 & \$ 8.95 \
\text { Units Purchased } & 22,500 & 52,500 \
\text { Sampling Hours } & 50 & 2,450 \
\text { Rework Hours } & 135 & 3,625 \
\text { Warranty Hours } & 475 & 6,000
\end{array}$
-Refer to the Figure.What is the total activity cost per component associated with using Customer 1 as the supplier?
A)$10.00
B)$15.75
C)$19.38
D)$20.00

Quizplus · Accepted Answer

The total activity cost per component for Customer 1 can be calculated by adding the purchase price to the proportionate costs of inspecting components, reworking products, and warranty work based on the hours attributed to Customer 1. First, calculate the total costs for each activity:- Inspecting components: $190,000- Reworking products: $2,254,000- Warranty work: $1,723,000Then, calculate the proportion of each activity cost attributed to Customer 1 based on hours:- Inspecting components: $50 / (50 + 2,450) = 50 / 2,500 = 0.02$ or 2% of $190,000 = $3,800- Reworking products: $135 / (135 + 3,625) = 135 / 3,760 = 0.0359$ or 3.59% of $2,254,000 = $80,898.60- Warranty work: $475 / (475 + 6,000) = 475 / 6,475 = 0.0734$ or 7.34% of $1,723,000 = $126,428.20Adding these costs to the purchase price per unit for Customer 1:- Purchase price: $10.00- Proportionate cost of inspecting components: $3,800 / 22,500 units = $0.17 per unit- Proportionate cost of reworking products: $80,898.60 / 22,500 units = $3.60 per unit- Proportionate cost of warranty work: $126,428.20 / 22,500 units = $5.62 per unitTotal activity cost per component for Customer 1 = $10.00 + $0.17 + $3.60 + $5.62 = $19.39Rounding to the nearest cent as per the options given, the closest match is $19.38.

Tigra Company Manufactures Engines II Supplier Data -Refer to the Figure