Question

Pharmax Distributors specializes in the distribution of pharmaceutical products at the retail level. Pharmax's customer base is comprised of three main retail groups: general supermarket chains, large drugstore chains, and small, single-store "Ma & Pa" pharmacies. To evaluate the relative profitability of each customer group, Pharmax plans to use an allocation system that recognizes the relative demands that these groups place on the company's resources. Parmax's chief accountant examined the firm's support costs and activities and collected the following data for a typical operating period: Support Activity Order processing Line item processing Store deliveries Carton handling Budgeted Cost $77,000 $68,000 $76,000 $65,000 Total Cost Driver 2,000 customer orders 21,450 line items 1,510 deliveries 79,300 cartons shipped She also gathered the following data for a typical operating period: Customer orders Line items Deliveries Cartons shipped General Supermarket 150 2,250 130 42,900 Drugstore Chains 350 4,200 280 21,000 Ma & Pa 1,500 15,000 1,100 15,400 REQUIRD [ROUND ALL ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.] Part A (5 tries; 5 points) If Pharmax uses a single-driver system to allocate its support costs, with number of customer orders as the single driver, how much would be allocated to its Ma & Pa customers? Submit Answer Tries o/s Part B (5 tries; 5 points) Ir Pharmax uses an activity-based costing system to allocate its overhead costs, how much would be allocated to its Drugstore Chain customers? Submit Answer Tries o/s

Answer 1

Part1: Computation of cost allocated to Ma & Pa Customers using single cost driver: a) Total support cost $286,000 b) Total no. of customer orders = 2,000 c) Support cost per customer order ab $143 per customer order d) No. of customer orders of Ma & Pa Customers -1,500 e) Support costs to be allocated to Ma & Pa customers -c dS214,500 So Support costs to be allocated to Ma & Pa customers S214,500 Note Total support costs - Order processing cost + Line itenm costs - $77,000+S68,000 S76,000S65,000 So total support costs S286,000 Part2: Computation of cost driver unit cost

Supporting Activity Budgeted Costs Order processing Line item processing Store deliveries Carton handling Cost Driver Cost driver unit cost $77,000 2,000 customer orders S38.50 per customer orders S68,000 21.450 line items $76,0001,510 deliveries S65,000 79,300 cartons shipped S0.8197 per cartons shipped S3.1702 per line items S50.3311 per delivery Computation of cost allocated to Drug chain Customers using activity based costing Total Total Activitv Pool Cost Driver Cost driver unit cost activitv cost $38.50 per customer Order processing Customer Orders 350 S13.475 4,200 S13,315 280 S14,093 21,000S17.213 orders S3.1702 per line items S50.3311 per delivery S0.8197 per cartons Line item processing Line items Store deliveries Deliveries Carton handling Cartons Shipped shipped Total costs S58,096