I. Activity Data Activity Cost $ 480,000 Inspecting components (sampling only) Reworking products (due to failed component) Warranty work (due to failed component) 6,084,000 9,600,000 II. Supplier Data Manzer Inc. Buckner Company Unit purchase price Units purchased Sampling hours" $89 $86 800,000 3,200,000 80 3,920 Rework hours 360 5,640 Warranty hours 800 15,200 "Sampling inspection for Manzer's product has been reduced because the reject rate is so low.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Activity-Based Supplier Costing
Bowman Company manufactures cooling systems. Bowman produces all the parts necessary for its product except for one electronic component, which is purchased from two local suppliers: Manzer Inc. and Buckner Company. Both suppliers are reliable and seldom deliver late; however, Manzer sells the component for $89 per unit, while Buckner sells the same component for $86. Bowman purchases 80% of its components from Buckner because of its lower price. The total annual demand is 4,000,000 components.
To help assess the cost effect of the two components, the following data were collected for supplier-related activities and suppliers:
Required:
1. Calculate the cost per component for each supplier, taking into consideration the costs of the supplier-related activities and using the current prices and sales volume. ( Note : Round the unit cost to two decimal places.)
2. Suppose that Bowman loses $4,000,000 in sales per year because it develops a poor reputation due to defective units attributable to failed components. Using warranty hours, assign the cost of lost sales to each supplier. By how much would this change the cost of each supplier’s component? (Round to two decimal places.)
3. CONCEPTUAL CONNECTION Based on the analysis in Requirements 1 and 2, discuss the importance of activity-based supplier costing for internal decision making.
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