Answer:
Levy Inc.
Watson = $1,096.60 per engine
Johnson = $1,015.30 per engine
Johnson is the low-cost supplier.
Explanation:
a) Data and Calculations:
Johnson Engines Watson Company Total
Price of engine per unit $1,000 $900
Annual demand 4,000 18,000 22,000
Activity Cost
Replacing engines a $800,000
Expediting orders b 1,000,000
Repairing engines c 1,800,000
Watson Johnson Total
Engines replaced by source 1,980 20 2,000
Late or failed shipments 198 2 200
Warranty repairs (by source) 2,440 60 2,500
Activity Cost Rate:
Replacing engines a $800,000/2,000 = $400
Expediting orders b 1,000,000/200 = $5,000
Repairing engines c 1,800,000/2,500 = $720
Activity-based Supplier Cost per Engine
Watson Johnson
Replacing engines a $400 $792,000 ($400*1,980) $8,000 ($400*20)
Expediting orders b $5,000 990,000 ($5,000*198) 10,000 ($5,000*2)
Repairing engines c $720 1,756,800 ($720*2,440) 43,200 ($720*60)
Total supplier-related costs $3,538,800 $61,200
Total price 16,200,000 4,000,000
Total cost $19,738,800 $4,061,200
Cost per engine $1,096.60 $1,015.30
