Question

Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to dozens of hospitals. In the face of declining profits, Med Max decided to implement an activity-based costing system to improve its understanding of the costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as shown below:

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Customer deliveries	Number of deliveries	$	302,400	4,200	deliveries
Manual order processing	Number of manual orders		214,400	3,200	orders
Electronic order processing	Number of electronic orders		177,840	11,700	orders
Line item picking	Number of line items picked		352,000	320,000	line items
Total selling and administrative expenses		$	1,046,640

Med Max gathered the data below for two of the many hospitals that it serves—City General and County General:

	Activity
Activity Measure	City General	County General
Number of deliveries	10	20
Number of manual orders	0	40
Number of electronic orders	10	0
Number of line items picked	130	290

Compute the total activity costs that would be assigned to City General and County General.

Answer 1

Determine the Activity rate for each activty pool Activity rate= Total Cost pool total AcCost pool/ Activity Customer Deliveries 302400 4200 72.00 Manual order processing 214400 3200 67.00 Electronic order Processing 177840 11700 15.20 Line item picking 352000 320000 1.10 Activity rate=Cost pool/ Activity City General County General OH allocated = OH allocated = Activity Rate Activity Activy *rate Activity Activy *rate Customer Deliveries 72.00 10 720 1440 Manual order processing 67.00 40 2680 Electronic order Processing 15.20 Line item picking 1.10 130 290 319 Total Overhead cost Allocatd 1015 4439) 10 152 143 Answers City General County General Activity Cost 1015 4439