Worley Company buys sur al supplies om a vanety o manufacturers and hen esells a

Question

Worley Company buys sur al supplies om a vanety o manufacturers and hen esells and delivers these supplies o hundreds o hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospital For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $106 to purchase these supplies. by 6%. For years, Worley believed hat he 6% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the ace o declining profits Worley decided to implement an activity-based cos ng system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activites as shown below: Total Activity 4,000 deliveries 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 S 356,000 600,000 20B,000 882,000 69D,000 S 2,736,000 8,000 orders 13,000 orders 490,000 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 $31,000 to buy from its manufacturers): Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked University 40 100 250 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. University Memorial 2. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.) Cost Pool Activity Rate Manual order processing Electronic order processing Line item picking per delvery per manual order per electronic order per line itern picked

Explanation / Answer

1 University Memorial Cost of goods sold to the hospital 31000 31000 Add: Markup @ 6% 1860 1860 Total Revenue 32860 32860 2 Activity Cost Pool Activity Rate Customer deliveries 89 per delivery =356000/4000 Manual order processing 75 per manual order =600000/8000 Electronic order processing 16 per electronic order =208000/13000 Line item picking 1.8 per line item picked =882000/490000 3 University Memorial Customer deliveries 979 1958 Manual order processing 0 3000 Electronic order processing 192 0 Line item picking 180 450 Total activity costs 1351 5408 4 University Memorial Total revenue 32860 32860 Costs: Cost of goods sold 31000 31000 Total activity costs 1351 5408 Customer margin 509 -3548

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