Activity-based costing system: ABC

>< Traditional costing system: use only one/two allocation bases: Machine hours/labor hours / units

Pty Ltd. Hardy Saucepans Corporation manufactures and sells saucepans and other kitchen equipment directly to
customers, as well as to retail stores. To produce its saucepan set, the company purchases raw materials and
components from a range of suppliers. We will focus on the two suppliers of the plastic handles for the standard
saucepan sets: Plastex Industries and Handles Ltd.Hardy Saucepans has been ordering the plastic handles from both
suppliers for many years. Hardy Saucepans retain two suppliers for this component as it believes this practice is less
risky than relying on a single supplier that might sometimes experience delivery or quality problems. Most orders are
placed with Plastex Industries, as it charges only $2 per handle , whereas Handles Ltd charges $2.2 per handle. In the
past year, Hardy Saucepans purchased a total of 10,000 units from Pastex and 6,000 units from Handles Ltd. The
accountant and the

Activity Cost per unit of activity driver Number of activities

Plastex Handles
Unit level
- Rework product due to poor-quality $50/unit reworked 45 5
material
- Downtime due to poor-quality material $45/ hour of downtime 30 4
- Store inventory $28/ unit stored/year 200 100
Order level
- Place purchase order $120/order 12 10
- Receiving a delivery $80/delivery 60 45
- Inspect material $40/delivery 60 45
- Receive and inspect late deliveries $250/late delivery 10 1
Supplier level
- Supplier relationship manager $25,000/supplier v
- Supplier audit $12,000 (Plastex)
- $6,000 (Handles) v
- R&D $25,000 (Plastex) v
 Activities Plastex Handles
Total units purchased
Purchase price per unit
Supplier activity costs
Unit level
- Rework product due to poor-quality
material
- Downtime due to poor-quality
material
- Store inventory
Order level
- Place purchase order
- Receiving a delivery
- Inspect material
- Receive and inspect late deliveries
Supplier level
- Supplier relationship manager
- Supplier audit
- R&D
Total supplier activity costs
Total supplier activity cost per unit
Total cost of ownership per unit