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 $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units. I. Activity DataActivity CostInspecting components (sampling only)$ 210,000Reworking products (due to failed component)$2,454,000Warranty work (due to failed component)$1,923,000II. Supplier DataHydraParableInternationalCompanyUnit purchase price$12.00$10.00Units purchased19,00076,000Sampling hours602,600Rework hours1503,800Warranty hours5507,000Calculate the total cost per component associated with using Parable Company as the supplier. (Note: Round the activity rates to the nearest dollar and the cost per component to two decimal places.) a.$67.24 b.$15.74 c.$78.92 d.$12.45 e.$86.28

Activity-based costing a method of assigning overheads based on usage of a particular activity…

Answered: Fame Company manufactures engines. Fame…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 2CMA

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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 total cost per component associated with using Parable Company as the supplier. (Note: Round the activity rates to the nearest dollar and the cost per component to two decimal places.)

	a.	$67.24
	b.	$15.74
	c.	$78.92
	d.	$12.45
	e.	$86.28

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