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 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 Support Activity Order processing Line item processing Store deliveries Carton handling Budgeted Cost $78,000 $62,000 $76,000 $72,000 Total Cost Driver 1,810 customer orders 19,270 line items 1,400 deliveries 70,000 cartons shipped She also gathered the following data for a typical operating period Customer orders Line items Deliveries Cartons shipped General Supermarket 150 1,950 100 31,000 Drugstore Chains 360 4,320 300 24,000 Ma & Pa 1,300 13,000 1,000 15,000 REQUIRED [ROUND ALL ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.J 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 Ma & Pa customers? Submit Answer Tries 0/5 Part B (5 tries; 5 points) Subrmit Answer Tries 0/5 If Pharmax uses an activity-based costing system to allocate its overhead costs, how much would be allocated to its Drugstore Chain customers?

Answer 1

Part A:
Total budgeted cost	288000
Customers drivers	1810
Activity rate	159.12
X Ma & Pa customer orders	1300
Overhead allocated	206856
Overhead allocated to Ma & Pa customer $206856
Part B:
Support activity
Order processing	Budgeted cost	Total cost driver	Activity rate	X Drugstore Chain activity	Overhead allocated
Line item processing	78000	1810	43.09	360	15512
Store deliveries	62000	19270	3.22	4320	13910
Carton handling	76000	1400	54.29	300	16287
Total	72000	70000	1.03	24000	24720
	288000			Total	70429
Overhead allocated to Drugstore Chain customers $70429