Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for...
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Accounting
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 activity rate for warranty work based on warranty hours. (Note: Round answer to the nearest dollar.)
a.
$255 per hour
b.
$262 per hour
c.
$287 per hour
d.
$268 per hour
e.
$264 per hour
Answer & Explanation
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