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: Budgeted Cost Total Cost Driver Support Activity Order processing 588,000 563,000 1,820 customer orders 21,100 line items Line item processing Store deliveries 1,630 deliveries $71,000 566,000 Carton handling 78,650 cartons shipped She also gathered the following data for a typical operating period: General Supermarket Drugstore Chains Ma & Pa Customer orders 140 1,300 Line items 14,300 380 4,560 330 28,050 2,240 100 29,000 Deliveries 1,200 Cartons shipped 21,600 REQUIRED [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 Drugstore Chain customers? Submit Answer Tries 0/5 Part B (5 tries; 5 points) If Pharmax uses an activity-based costing system to allocate its overhead costs, how much would be allocated to its General Supermarket customers? Submit Answer Tries 0/5

Answer 1

Single overhead rate = Total overheads/Total Deliveries
=(88000+63000+71000+66000)/(140+380+1300)
158.2417582	per customer order
Amount allocated to Drugchain = 380*158.24 = $60,131.2
ABC System
Support Activity	Budgeted Cost	Total Cost Driver	Activity Rate	Activity consumed by General Supermarket	Overhead Allocated
Order processing	$88,000	1820	$48.35	140	$6,769.00
Line item processing	$63,000	21100	$2.99	2240	$6,697.60
Store deliveries	$71,000	1630	$43.56	100	$4,356.00
Carton handling	$66,000	78650	$0.84	29000	$24,360.00
				Total	$42,182.60
Hence, the answer is $42,183