Activity Based Costing of Suppliers
Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First Parts. If the metal is delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual penalties that call for Davis to reimburse a portion of the purchase price to the customer. During the past quarter, the purchasing and delivery data for the two suppliers showed the following:
|
|
Alpha |
First |
Total |
|
Total purchases (tons) |
10,000 |
6,000 |
16,000 |
|
Average purchase price |
$ 10.00 |
$ 12.00 |
$ 10.75 |
|
Number of deliveries |
80 |
20 |
100 |
|
Percentage of late deliveries |
25% |
5% |
21% |
The accounting department recorded $33,600 as the cost of late deliveries to customers.
Required
Assume that the average quality, measured by the percentage of late deliveries, and prices from the two companies will continue as in the past. What is the effective price for metal from the two companies when late deliveries are considered?