Question

3. value: 5.00 points Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 7%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $107 to purchase these supplies. For years, Worley believed that the 7% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below: Activity Cost Pool (Activity Measure) Customer deliveries (Number of deliveries) Manual order processing (Number of manual orders) Electronic order processing (Number of electronic orders) Line item picking (Number of line items picked) Other organization-sustaining costs (None) Total selling and administrative expenses Total Cost $ 261,000 450,000 264,000 713,000 650,000 $2,338,000 Total Activity 3,000 deliveries 6,000 orders 11,000 orders 460,000 line items Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $32,000 to buy from its manufacturers): Activity University Memorial 12 24 Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked 47 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. Total Revenue University Memorial 2. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.) per delivery Activity Cost Pool A Customer deliveries Manual order processing Electronic order processing Line item picking per manual order per electronic order per line item picked

Answer 1

1
	University	Memorial
Cost of goods sold	32000	32000
Add: Markup @ 7%	2240	2240
Total Revenue	34240	34240
2
Activity cost pool	Total cost	Total activity	Activity rate
Customer deliveries	261000	3000	87.00	per delivery
Manual order processing	450000	6000	75.00	per manual order
Electronic order processing	264000	11000	24.00	per electronic order
Line item picking	713000	460000	1.55	per line item picked
3
	University			Memorial
Activity cost pool	Activity	Activity rate	Cost allocated	Activity	Activity rate	Cost allocated
Customer deliveries	12	87.00	1044.00	24	87.00	2088.00
Manual order processing	0	75.00	0.00	47	75.00	3525.00
Electronic order processing	10	24.00	240.00	0	24.00	0.00
Line item picking	200	1.55	310.00	270	1.55	418.50
		Total	1594.00		Total	6031.50
	Total activity costs
University	1594.00
Memorial	6031.50
4
	University	Memorial
Revenue	34240.00	34240.00
Less: Costs
Cost of goods sold	32000.00	32000.00
Activity costs	1594.00	6031.50
Customer margin	646.00	-3791.50