Hamilton Company manufactures engines. Hamilton produces all the parts necessary for its engines except for one electronic, which is purchased from two local suppliers: Traynor Inc. and Bello Company. Both suppliers are reliable and rarely deliver late; however, Traynor sells the components from Bello, because of the lower price. The total annual demand is 75,000 units.
1. Activity Data Activity Cost
Inspecting Components (sampling only) $ 190,000
Reworking products (due to failed component) $2,254,000
Warranty work (due to failed component) $1,723,000
2. Supplier Data
Unit Purchase Price $10,000 $8.95
Units Purchased 22,500 52,500
Sampling Hours 50 2,450
Rework hours 135 3,625
Warranty hours 475 6,000
Calculate the activity rate for reworking products based on rework hours. Round to the nearest whole dollar.
a. $599 per hour
b. $595 per hour
c. $602 per hour
d. $605 per hour
e. $622 per hour
The expert calculates the activity rate for rework of Hamilton Company.