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	Budgeted Cost	Total Cost Driver
Order processing	$86,000	2,110 customer orders
Line item processing	$63,000	24,460 line items
Store deliveries	$75,000	1,520 deliveries
Carton handling	$74,000	80,400 cartons shipped

She also gathered the following data for a typical operating period:

	General Supermarket	Drugstore Chains	Ma & Pa
Customer orders	140	370	1,600
Line items	1,680	5,180	17,600
Deliveries	120	300	1,100
Cartons shipped	33,600	27,000	19,800

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 deliveries as the single driver, how much would be allocated to its Drugstore Chain customers? $58,815

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?

137,249 is not correct

Answer 1

Calculate Following

Activity	Activity rate	Driver	Allocated cost to General supermarket customers
Order processing	86000/2110 = 40.76	140	5706
Line item processing	63000/24460 = 2.58	1680	4334
Store deliveries	75000/1520 = 49.34	120	5921
Carton handling	74000/80400 = 0.92	33600	30921
Total			46873