Fame Company manufactures engines. Fame produces all the parts necessary for its
ID: 2332407 • Letter: F
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 Hydra Intemational 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 Inspecting components (sampling only) Reworking products (due to failed component) Warranty work (due to failed component) s 210,000 $2,454,000 $1,923,000 II. Supplier Data HvdraParable IntenationalCompany $10.00 76,000 2,600 3,800 7,000 $12.00 19,000 50 Unit purchase price Units purchased Sampling hours Rework hours 550 Warranty hours Suppose that Fame loses $3,500,000 in sales per year because of its reputation for defective units attributable to failed componeras Using warranty hours, assign the proportional cost of lost sales to Hydra International What is the mcrease in the cost per component? (Note: Round the lost sales per warranty hour and the cost of the componest to two decimal places) o a $4.65 per unit b. $13.42 per unt O 5895 per uns o d. 525.72 per unitExplanation / Answer
Correct Answer ----(b) $ 13.42
Calculations
Apportionment of Loss opf sales between Hydra and Parable
(A)
Total loss of sales
$ 3,500,000.00
(B)
Warranty hour or Activity total (550+7000)
7550
(A/B)
Cost per warranty hour
$ 463.58
Hydra
Parable
Warranty hours
$ 550.00
$ 7,000.00
Cost per warranty hour
$ 463.58
$ 463.58
Total Allocated cost
$ 254,966.89
$ 3,245,033.11
Cost per Component
(A)
Cost allocated to Hydra
$ 254,966.89
(B)
Total Units sold
$ 19,000.00
(A/B)
Cost per Component
$ 13.42
(A)
Total loss of sales
$ 3,500,000.00
(B)
Warranty hour or Activity total (550+7000)
7550
(A/B)
Cost per warranty hour
$ 463.58
Hydra
Parable
Warranty hours
$ 550.00
$ 7,000.00
Cost per warranty hour
$ 463.58
$ 463.58
Total Allocated cost
$ 254,966.89
$ 3,245,033.11
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