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 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 inspecting components based on sampling hours. (Note: Round answer to the nearest dollar.)

a.$72 per hour
b.$77 per hour
c.$79 per hour
d.$75 per hour
e.$80 per hour

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

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

Sampling hours:

Hydra 60

Parabel 2,600

Activity rate= 210,000/(2,660)= $78.95= $79 per hour