Question

Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to dozens of hospitals. In the face of declining profits, Med Max decided to implement an activity-based costing system to improve its understanding of the costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as shown below: Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Total selling and administrative expenses Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Total Cost Total Activity $ 481,6005 ,600 deliveries 372,600 4,600 orders 217,460 13,100 orders 552,000 460,000 line items $1,623, 660 Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity City County General General 20 40 10 110 270 Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked 10 Required: 1. Compute the activity rate for each activity cost pool. 2. Compute the total activity costs that would be assigned to City General and County General. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the total activity costs that would be assigned to City General and County General. (Do not round intermediate calculations.) ABC Cost City County General General Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Total activity costs S 0S 0

Answer 1

Calculation of Activity Rate
Activity	Activity Cost(Col 1)	Cost Driver(Col 2)	Activity Rate(Col 1 / Col.2)
Customer Deliveries	$                                      4,81,600	5600 deliveries	$                             86.00	Per delivery
Manual order processing	$                                      3,72,600	4600 orders	$                             81.00	Per order
Electronic order processing	$                                      2,17,460	13100 orders	$                             16.60	Per order
Line item picking	$                                      5,52,000	460000 line items	$                               1.20	Per line item
Allocation of Activity Costs		Activity Rate * Activity-Base Usage
	Activity Rate	City general	County general	Total
Customer Deliveries	$                                           86.00	$                                     860	$                           17,200	$                                18,060
Manual order processing	$                                           81.00	$                                        -	$                             3,240	$                                  3,240
Electronic order processing	$                                           16.60	$                                     166	$                                   -	$                                     166
Line item picking	$                                             1.20	$                                     132	$                                324	$                                     456
Total activity Costs		$                                  1,158	$                           20,764	$                                21,922