Tulsa Company is a car brake repair and replacement company operating in the after-sales market. Tulsa’s purchasing manager uses two suppliers (Stridulo and Fallimento) for the source of its passenger car brakes. Data relating to brake discs (Discs) and brake pads (Pads) are given on the next page.

Required:

1. Calculate the activity rates for assigning costs to suppliers.

2. Calculate the total unit purchasing cost for each component for each supplier.

3. What if the quantity of brake pads that can be purchased is limited to 20,000 units from Stridulo and 25,000 units from Fallimento? There is no limit from either source for brake discs. Based on cost, what purchasing mix should be chosen? What problem does this create? What else might you suggest if you were the manager of Tulsa?

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I. Activity Costs Activity Adverse buying* Supplier returns** $800,000 100,000 *Extra cost of purchasing from local car dealer because of insufficient delivery of supplier. **Brakes returned because they were not ordered or because they were defective. II. Supplier Data Unit purchase price Units purchased Insufficient units Returned units Stridulo Brakes Pads $148.75 10,000 2,000 500 Discs $ 53.75 10,000 2,000 500 Fallimento Brakes Pads $146.50 15,000 6,000 1,500 Discs $ 46.50 15,000 6,000 1,500