Question: Activity-Based Supplier Costing

LissenPhones uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its cell phones: Component 125X and Component 30Y. Consider two activities: testing and reordering components. After the two components are inserted, testing is done to ensure that the two components in the phones are working properly. Reordering occurs because one or both of the components have failed the test and it is necessary to replenish component inventories. Activity cost information and other data needed for supplier costing are as follows:

I. Activity Costs Caused by Suppliers (testing failures and reordering as a result)

Activity                                        Costs

Testing components                  $1,500,000

Reordering components                  375,000

II. Supplier Data

Required: Determine the cost of each supplier by using ABC.