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Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for...

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Accounting

Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units.

I. Activity Data

Activity Cost

Inspecting components (sampling only)

$ 210,000

Reworking products (due to failed component)

$2,454,000

Warranty work (due to failed component)

$1,923,000

II. Supplier Data

Hydra

Parable

International

Company

Unit purchase price

$12.00

$10.00

Units purchased

19,000

76,000

Sampling hours

60

2,600

Rework hours

150

3,800

Warranty hours

550

7,000

Calculate the activity rate for warranty work based on warranty hours. (Note: Round answer to the nearest dollar.)

a.

$255 per hour
b.

$262 per hour
c.

$287 per hour
d.

$268 per hour
e.

$264 per hour

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