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: Total Cost Driver Support Activity Order processing Line item processing Budgeted Cost $81,000 1,870 customer orders $62,000 24,450 line items Store deliveries $75,000 1,450 deliveries Carton handling $78,000 73,100 cartons shipped She also gathered the following data for a typical operating period: General Supermarket Ma & Pa Drugstore Chains 330 140 1,400 Customer orders Line items 1,960 4,290 Deliveries 110 290 18,200 1,050 14,700 Cartons shipped 35,200 23,200 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 Ma & Pa 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 Drugstore Chain customers? Submit Answer Tries 0/5

Answer 1

Answer A

$ 221,606

Answer B

$ 65,015

Calculations to part A

Order processing	$     81,000
Line item processing	$     62,000
Store deliveries	$     75,000
Carton handling	$     78,000
Total Cost	$ 296,000
Cost allocated to Ma & Pa (296000/1870*1400)	$ 221,606

Calculations to part B

	Cost	Cost driver	Cost per driver unit	Drugstore chain	Cost to drugstore chain
Order processing	$     81,000	1,870	$                      43.32	330	$                            14,296
Line item processing	$     62,000	24,450	$                        2.54	4,290	$                            10,897
Store deliveries	$     75,000	1,450	$                      51.72	290	$                            14,999
Carton handling	$     78,000	73,100	$                        1.07	23,200	$                            24,824
Total Cost	$ 296,000				$                            65,015

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