Question

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 Ma & Pa customers?

If Pharmax uses an activity-based costing system to allocate its overhead costs, how much would be allocated to its Drugstore Chain customers?

For this question keep in mind that There is more than one driver and more than one rate, and the allocation to a customer group is the sum of several individual allocations.

These are the two questions ^^^ . ROUND ALL ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.

We are allocating support costs, which is supposedly the same as overhead costs.

Here are the numbers. Let me know if you need any additional information.

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 & upermarket thains marge drugstore chainsand small single spre mine 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: Budgeted Cost Support Activity Order processing $72,000 $69,000 Line item processing Store deliveries Total Cost Driver 2,110 customer orders 21,550 line items 1,540 deliveries 83,400 cartons shipped $78,000 Carton handling $72,000 She also gathered the following data for a typical operating period: Ma & Pa Customer orders General Supermarket 150 150 1,950 Drugstore Chains 360 360 3,600 1,600 Line items 16,000 Deliveries 120 320 24,000 1,100 19,800 Cartons shipped 39,600

Answer 1

Solution 1. If Pharmax uses single driver system Computation of single driver Order Processing Line item processing Store deliveries Carton handling Total Cost Number of deliveries (B) 72,000 69,000 78,000 72,000 2,91,000 1,540 deliveries (A) $ Cost per driver (A/B) $ 188.96 Allocated cost to Ma & Pa customers based upon number of deliveries = 1100 deliveries x $188.96 = $ 2,07,857 Solution 2. Over head allocation using Activity based costing | Activity Cost (a) Driver (b) Order Processing $ 72,000 2110 customer orders Line item processing $ 69,000 21550 Line items Store deliveries $ 78,000 1540 deliveries Carton handling $ 72,000 83400 cartons shipped Cost per driver (a/b) 34.12 3.26 50.65 0.86 Allocation of Overhead costs to Drug chain customers Driver (a) Cost per driver (b) Product (a xb) Order Processing 360 customer orders 34.12 $ 12,284 Line item processing 3600 line items 3.26 $ 11,745 Store deliveries 320 deliveries 50.65 $ 16,208 Carton handling 24000 cartons shipped 0.86 $ 20,719 TOTAL $ 60,956 isions Therefore, Overhead costs allocated to Drug Chain customers is $60,596

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