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 profitab 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 Store deliveries Carton handling Budgeted Cost $74,000 $64,000 $65,000 Total Cost Driver 2,190 customer orders 26,140 line items 1,530 deliveries $68,000 81,650 cartons shipped She also gathered the following data for a typical operating period: General Supermarket Ma & Pa 140 1,700 2,240 Customer orders Line items Deliveries Cartons shipped Drugstore Chains 350 3,500 290 21,750 140 43,400 20,400 1,100 16,500 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 Incorrect. Tries 2/5 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 General Supermarket customers? Submit Answer Incorrect. Tries 1/5 Previous Tries

Answer 1

Ans : Part A

Allocation of support costs to drugstore chain customer with single driver system

Total support costs = $ 2,71,000

Total customer orders = 2,190

Total support cost for drugstore chain customer =

$ 2,71,000 x 350/2,190 = $ 43,310.50

Part B : Allocation of support costs to general supermarket customers using activity based costing system :

Order processing cost = $ 74,000 x 140/2,190 = $ 4,730.59

Line item processing cost = $ 64,000 x 2,240/26,140 =  5,484.32

Store deliveries cost = $ 65,000 x 140 / 1,530 = $ 5,947.71

Carton handling cost = $ 68,000 x 43,400 / 81,650 = $ 36,145

Total support costs for general supermarket customers =

$ 4,730.59 + 5,484.32 + 5,947.71 + 36,145 = $ 52,307.62