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 Budgeted Cost $73,000 $67,000 $75,000 $77,000 Total Cost Driver 2,100 customer orders 24,760 line items 1,560 deliveries 81,400 cartons shipped Store deliveries Carton handling She also gathered the following data for a typical operating period: Ma & Pa General Supermarket 140 Customer orders Line items Deliveries 1,960 Drugstore Chains 360 3,600 320 24,000 1,600 19,200 1,100 15,400 140 4 2,000 Cartons shipped 1 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 General Supermarket customers? 187,717.95 Submit Answer Incorrect. Tries 1/5 Previous Tries 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 Ma & Pa customers? Submit Answer Tries 0/5

Answer 1

Answer a

$ 19,467

Answer b

$ 175,166

Calculations for answer a

Order processing	$     73,000
Line item processing	$     67,000
Store deliveries	$     75,000
Carton handling	$     77,000
Total Cost	$ 292,000
Cost allocated to general Superstores (292000/2100*140)	$     19,467

Calculations for answer b

	Cost	Cost driver	Cost per driver unit	Ma & Pa	Cost to Ma & Pa
Order processing	$     73,000	2,100	$                      34.76	$     1,600.00	$               55,616
Line item processing	$     67,000	24,760	$                        2.71	$ 19,200.00	$               52,032
Store deliveries	$     75,000	1,560	$                      48.08	$     1,100.00	$               52,888
Carton handling	$     77,000	81,400	$                        0.95	$ 15,400.00	$               14,630
Total Cost	$ 292,000				$             175,166

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