Question

Exercise 4-9 Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO4-2, LO4-3] Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to dozens of hospitals. In the face of declining profits, Med Max decided to implement an activity-based costing system to improve its understanding of the costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as shown below: Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Total selling and administrative expenses Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Total Cost $ 413,100 311,600 202,860 533,000 $1,460,560 Total Activity 5,100 deliveries 4,100 orders 12,600 orders 410,000 line items Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity City County General General 15 Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked 30 60 270 Required: 1. Compute the activity rate for each activity cost pool. 2. Compute the total activity costs that would be assigned to City General and County General. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.) Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Activity Rate per delivery per manual order per electronic order per line item picked Required 1 Required 2 >

Answer 1

1. The activity rate for each activity cost pool

Activity cost pool Activity measure Customer deliveries Number of deliveries Manual order processing Number of manual orders Electronic order processing Number of electronic orders Line item picking Number of line item picked Total selling and administrative expenses Total cost Total activity Activity rate a-b | $ 413,100 5,100 deliveries $ 81.00 per delivery $ 311,600 4,100 orders $ 76.00 per manual order $ 202,860 12,600 orders $ 16.10 per electronic order $ 533,000 410,000 line items $ 1.30 per line item picked $ 1,460,560

• The activity rate is the cost incurred for each activity used.

2. Total activity costs assigned

Activity cost pool Activity rate Customer deliveries $ 81.00 per delivery Manual order processing $ 76.00 per manual order ABC Cost City General County General 1,215.00 $ 2,430.00 (15 deliveries $81) (30 deliveries x $81) - $ 4,560.00 (O manual orders $76) (60 manual orders * $ 76) $ 322.00 $ (20 electronic orders $16.10) (0 electronic orders $16.10) 143.00 $ 351.00 (110 line items x $1.30) | (270 line items x $1.30) 1,680.00 $ 7,341.00 Electronic order processing $ 16.10 per electronic order Line item picking $ 1.30 per line item picked Total activity costs