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
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 |