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	$	525,100	5,900	deliveries
Manual order processing	Number of manual orders		411,600	4,900	orders
Electronic order processing	Number of electronic orders		226,460	13,400	orders
Line item picking	Number of line items picked		514,500	490,000	line items
Total selling and administrative expenses		$	1,677,660

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	140	300

Required:

1. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

	Activity Cost Pool Activity Rate Customer deliveries per delivery Manual order processing per manual order Electronic order processing per electronic order Line item picking per line item picked

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

Compute the total activity costs that would be assigned to City General and County General. (Do not round intermediate calculations.)

	ABC Cost Activity Cost Pool City General County General Customer deliveries Manual order processing Electronic order processing Line item picking Total activity costs

Answer 1

Solution

Requirement 1

Customer deliveries	$             89.00	Per delivery
Manual order processing	$             84.00	Per manual order
Electronic order processing	$             16.90	Per electronic order
Line item picking	$               1.05	Per line item picked

Requirement 2

Activity Cost Pool	City General	County General
Customer deliveries	$ 890	$ 1,780
Manual order processing	$ 0	$ 3,360
Electronic order processing	$ 169	$ 0
Line item picking	$ 147	$ 315
Total activity costs	$ 1,206	$ 5,455

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Customer deliveries	Number of delivery	$ 525,100	5900	$             89.00	Per delivery
Manual order processing	Number of manual order	$ 411,600	4900	$             84.00	Per manual order
Electronic order processing	Number of electronic order	$ 226,460	13400	$             16.90	Per electronic order
Line item picking	Number of line item picked	$ 514,500	490000	$               1.05	Per line item picked

.

Cost assigned to City general
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Customer deliveries	$           89.00	10.00	$ 890
Manual order processing	$           84.00	-	$ 0
Electronic order processing	$           16.90	10.00	$ 169
Line item picking	$             1.05	140.00	$ 147
Total Overheads assigned			$ 1,206

.

Cost assigned to Country general
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Customer deliveries	$           89.00	20	$ 1,780
Manual order processing	$           84.00	40	$ 3,360
Electronic order processing	$           16.90	0	$ 0
Line item picking	$             1.05	300	$ 315
Total Overheads assigned			$ 5,455