Worley Company buys surgical supplies from a variety of manufacturers and then r

Question

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 8%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies For years, Worley believed that the 8% 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: Total Activity Total Cost $ 340,000 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) 284,000 4,000 orders 220,000 11,000 orders 798,000 420,000 line items 690,000 Total selling and administrative expenses $2,332,000 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 $39,000 to buy from its manufacturers) Activity Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Memorial 21 49 University 14 14 200 Required 1. Compute the total revenue that Worley would receive from University and Memorial Tota Revenue University Memorial

Explanation / Answer

Worley Company Activity cost pool Activity measure Total Cost Total Activity Activity Rate   Customer deliveries No of deliveries                              340,000                     4,000 $                85.00 Manual order processing   No of manual orders                              284,000                     4,000 $                71.00 Electronic order processing No of electronic orders                              220,000                  11,000 $                20.00 Line item picking   No of line items picked                              798,000                420,000 $                  1.90 Other Org sustaining cost NA     1 Total Revenue receivable University   Memorial Revenue                                          42,120                                 42,120     2 Activity Rates Activity cost pool Activity Rate   Customer deliveries $                                        85.00 Per delivery Manual order processing   $                                        71.00 per manual order Electronic order processing $                                        20.00 per electronic order Line item picking   $                                          1.90 per line item picked Activity details Activity cost alloacted     3 Activity cost pool Activity Rate   University Memorial University Memorial Customer deliveries $                                        85.00                                         14                           21                    1,190               1,785 Manual order processing   $                                        71.00                                          -                             49                           -                 3,479 Electronic order processing $                                        20.00                                         14                            -                          280                      -   Line item picking   $                                          1.90                                       130                        200                        247                  380 Total                    1,717               5,644 University Memorial Total Activity cost allocated                                              1,717                                   5,644     4 Customer Margin   Customer Margin   University Memorial Sales Revenue                                          42,120                                 42,120 Cost of Goods sold                                          39,000                                 39,000 Activity costs alloacted                                            1,717                                   5,644 Total Cost                                          40,717                                 44,644 Net Customer Margin                                            1,403                                 (2,524)

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.