Med Max buys surgical supplies from a variety of manufacturersand then resells and delivers these supplies to hundreds ofhospitals. Med Max sets its prices for all hospitals by marking upits cost of goods sold to those hospitals by 9%. For example, if ahospital buys supplies from Med Max that had cost Med Max $100 tobuy from manufacturers, Med Max would charge the hospital $109 topurchase these supplies.
For years, Med Max believed thatthe 9% markup covered its selling and administrative expenses andprovided a reasonable profit. However, in the face of decliningprofits Med Max decided to implement an activity-based costingsystem to help improve its understanding of customer profitability.The company broke its selling and administrative expenses into fiveactivities as shown below:
Activity CostPool Activity Measure Total Cost Total Activity Customerdeliveries Number of deliveries $ 405,000 5,000 deliveries Manual orderprocessing Number of manual orders 370,000 5,000 orders Electronic orderprocessing Number of electronic orders 312,000 12,000 orders Line itempicking Number of line items picked 980,000 400,000 line items Otherorganization-sustaining costs NA 680,000 Total selling andadministrative expenses $ 2,747,000
Med Max gathered the data below for two of the many hospitalsthat it servesâCity General and County General (each hospitalpurchased medical supplies that had cost Med Max $35,000 to buyfrom its manufacturers):
Activity
ActivityMeasure CityGeneral CountyGeneral Number ofdeliveries 14 28 Number of manualorders 0 45 Number of electronicorders 12 0 Number of line itemspicked 150 260
Required: 1. Compute the total revenue that Med Max would receive from CityGeneral and County General. (Omit the "$" sign in yourresponse.)
TotalRevenue City General $ County General $
2. Compute the activity rate for each activity cost pool.(Round the "Line item picking" to 2 decimal places. Omitthe "$" sign in your response.)
Activity CostPool ActivityRate Customerdeliveries $ per delivery Manual orderprocessing $ per manual order Electronic orderprocessing $ per electronic order Line itempicking $ per line item picked
3. Compute the total activity costs that would be assigned to CityGeneral and County General. (Round yourintermediate calculations and final answers to 2 decimalplaces. Omit the "$" sign in yourresponse.)
TotalActivity Costs City General $ County General $
4. Compute Med Maxâs customer margin for City General and CountyGeneral. (Hint: Do not overlook the $35,000 cost of goods sold thatMed Max incurred serving each hospital.) (Loss amountshould be indicated with a minus sign. Round your intermediatecalculations and final answers to 2 decimal places. Omit the "$"sign in your response.)
CustomerMargin City General $ County General $
Med Max buys surgical supplies from a variety of manufacturersand then resells and delivers these supplies to hundreds ofhospitals. Med Max sets its prices for all hospitals by marking upits cost of goods sold to those hospitals by 9%. For example, if ahospital buys supplies from Med Max that had cost Med Max $100 tobuy from manufacturers, Med Max would charge the hospital $109 topurchase these supplies. |
For years, Med Max believed thatthe 9% markup covered its selling and administrative expenses andprovided a reasonable profit. However, in the face of decliningprofits Med Max decided to implement an activity-based costingsystem to help improve its understanding of customer profitability.The company broke its selling and administrative expenses into fiveactivities as shown below: |
| Activity CostPool | Activity Measure | Total Cost | Total Activity | ||
| Customerdeliveries | Number of deliveries | $ | 405,000 | 5,000 | deliveries |
| Manual orderprocessing | Number of manual orders | 370,000 | 5,000 | orders | |
| Electronic orderprocessing | Number of electronic orders | 312,000 | 12,000 | orders | |
| Line itempicking | Number of line items picked | 980,000 | 400,000 | line items | |
| Otherorganization-sustaining costs | NA | 680,000 | |||
| Total selling andadministrative expenses | $ | 2,747,000 | |||
Med Max gathered the data below for two of the many hospitalsthat it servesâCity General and County General (each hospitalpurchased medical supplies that had cost Med Max $35,000 to buyfrom its manufacturers): |
Activity | ||
| ActivityMeasure | CityGeneral | CountyGeneral |
| Number ofdeliveries | 14 | 28 |
| Number of manualorders | 0 | 45 |
| Number of electronicorders | 12 | 0 |
| Number of line itemspicked | 150 | 260 |
| Required: | |
| 1. | Compute the total revenue that Med Max would receive from CityGeneral and County General. (Omit the "$" sign in yourresponse.) |
| TotalRevenue | |
| City General | $ |
| County General | $ |
| 2. | Compute the activity rate for each activity cost pool.(Round the "Line item picking" to 2 decimal places. Omitthe "$" sign in your response.) |
| Activity CostPool | ActivityRate | |
| Customerdeliveries | $ | per delivery |
| Manual orderprocessing | $ | per manual order |
| Electronic orderprocessing | $ | per electronic order |
| Line itempicking | $ | per line item picked |
| 3. | Compute the total activity costs that would be assigned to CityGeneral and County General. (Round yourintermediate calculations and final answers to 2 decimalplaces. Omit the "$" sign in yourresponse.) |
| TotalActivity Costs | |
| City General | $ |
| County General | $ |
| 4. | Compute Med Maxâs customer margin for City General and CountyGeneral. (Hint: Do not overlook the $35,000 cost of goods sold thatMed Max incurred serving each hospital.) (Loss amountshould be indicated with a minus sign. Round your intermediatecalculations and final answers to 2 decimal places. Omit the "$"sign in your response.) |
| CustomerMargin | |
| City General | $ |
| County General | $ |
Related questions
Worley Company buys surgical supplies from a variety ofmanufacturers and then resells and delivers these supplies tohundreds of hospitals. Worley sets its prices for all hospitals bymarking up its cost of goods sold to those hospitals by 6%. Forexample, if a hospital buys supplies from Worley that had costWorley $100 to buy from manufacturers, Worley would charge thehospital $106 to purchase these supplies.
For years, Worley believed thatthe 6% markup covered its selling and administrative expenses andprovided a reasonable profit. However, in the face of decliningprofits Worley decided to implement an activity-based costingsystem to help improve its understanding of customer profitability.The company broke its selling and administrative expenses into fiveactivities as shown below: |
| Activity Cost Pool (Activity Measure) | Total Cost | Total Activity | |||
| Customer deliveries (Number of deliveries) | $ | 445,000 | 5,000 | deliveries | |
| Manual order processing (Number of manual orders) | 525,000 | 7,000 | orders | ||
| Electronic order processing (Number of electronicorders) | 260,000 | 13,000 | orders | ||
| Lineitem picking (Number of line items picked) | 1,035,000 | 450,000 | line items | ||
| Other organization-sustaining costs (None) | 690,000 | ||||
| Total selling and administrative expenses | $ | 2,955,000 | |||
Worley gathered the data below for two of the manyhospitals that it servesâUniversity and Memorial (both hospitalspurchased a total quantity of medical supplies that had cost Worley$37,000 to buy from its manufacturers): |
Activity | ||
| Activity Measure | University | Memorial |
| Number of deliveries | 14 | 24 |
| Number of manual orders | 0 | 48 |
| Number of electronic orders | 15 | 0 |
| Number of line items picked | 150 | 230 |
| Required: | |
| 1. | Compute the total revenue that Worley would receive fromUniversity and Memorial. |
| University Memorial | |
| 2. | Compute the activity rate for each activity cost pool.(Round your answers to 2 decimal places.) Customer Deliveries Manual Order Processing Electronic Order Processing Line Item Picking |
| 3. | Compute the total activity costs that would be assigned toUniversity and Memorial. (Round your intermediatecalculations and final answers to 2 decimal places.) |
| University Memorial |
| 4. | Compute Worleyâs customer margin for University and Memorial.(Hint: Do not overlook the $37,000 cost of goods sold that Worleyincurred serving each hospital.) (Loss amount should beindicated with a minus sign. Round your intermediate calculationsand final answers to 2 decimal places. University Memorial |
