Question

Chapter 4 Homework Saved Help Save & Exit Submit Check my work Exercise 4-9 Compute and Use Activity Rates to Determine the costs of Serving Customers [LO4-2, LO4-3] points 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: eBook Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Total selling and administrative expenses Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Total Cost $ 495,900 385,400 220,440 540,500 $1,642,240 Total Activity 5,700 deliveries 4,700 orders 13,200 orders 470,000 line items References Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity City County General General 15 Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked 20 120 280 Required: 1. Compute the activity rate for each activity cost pool. 2. Compute the total activity costs that would be assigned to City General and County General.

Answer 1

Requirement - 1 : a Activity Rate - Total cost Customer deliveries Total Activity $495,900 5700 deliveries – - $87 Manual order processing - $385 900 4700 orders = $82 Electronie Order processing - $ 220,440 13,200 orders 30 2 $16.70

Lêne etem picking - $540,500 470.000 line items = $ 1.15 Acterity Cost Pool Customer deliveries Manual order processing Electronie order processing Lone item preking Activity Rate & 87 per delivery $82 per manual order $ 16.70 per electronic order $ 1.15 per lêne êtem picked

Requirement -2: Computation of Actiritz Cost: Customer deliveries cost = Number of delivery x Rate por delivery city General = 15 deliveries & $87 = $1305 county General - 30 deliveries & $87 - $2610 Manual order processing cast - Number of manual order & Rate per manual order

city Coneral - 0 order x $82 county General - 60 orders & $82 > $4920 Electronic order processing cost = number of electronie order & Rate per electro- ne order city General - 20 orders & $16.70 $ 334 County General = o order & $16²70 2$0 Lêne etem picking cast = number of line estem picked x Rate per line étem. Preked City General - 120 Etems x $1.15 2 $138 county General – 280 stems & $1.15 - $322

ABC Cêty General $ 1305 Acterity cost Pool Customer deliveries Manual order processing Electronie order processing Lene etem picking Total activity costs Cost County Greneral $ 2610 4920 334 138 $ 1,777 T 322 $ 7852