Question

Exercise 4-9 Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO4-2, LO4-3] 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 $ 280,000 195,000 172,500 300,000 $ 947,500 Total Activity 4,000 deliveries 3,000 orders 11,500 orders 300,000 line items Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Activity City County General General 20 40 0 80 15 150 310 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 activity rate for each activity cost pool. (Round your answers to 2 decimal places.) Activity Cost Pool Customer deliveries Manual order processing Electronic order processing Line item picking Activity Rate per delivery per manual order per electronic order per line item picked Required 1 Required 2 >

Answer 1

Answer

• Requirement 1

Activity Cost Pool (Activity Measure)	Total Cost	Total Activity		Activity Rates
Customer deliveries (Number of deliveries)	$                           280,000.00	4000	deliveries	$                                                70.00	per deliveries
Manual order processing (Number of manual orders)	$                           195,000.00	3000	orders	$                                                65.00	per orders
Electronic order processing (Number of electronic orders)	$                           172,500.00	11500	orders	$                                                15.00	per orders
Line item picking (Number of line items picked)	$                           300,000.00	300000	line items	$                                                   1.00	per line items

• Requirement 2

	City General	County General
Customer deliveries (Number of deliveries)	$                        1,400.00	$               2,800.00
Manual order processing (Number of manual orders)	$                                     -	$               5,200.00
Electronic order processing (Number of electronic orders)	$                           225.00	$                            -
Line item picking (Number of line items picked)	$                           150.00	$                   310.00
Total Activity cost	$                        1,775.00	$               8,310.00

--Working

CITY
Activity Cost Pool (Activity Measure)	Total Cost	Activity Rates		No. of cost drivers	Cost Allocated
Customer deliveries (Number of deliveries)	$                           280,000.00	$                       70.00	per deliveries	20	$                     1,400.00
Manual order processing (Number of manual orders)	$                           195,000.00	$                       65.00	per orders	0	$                                  -
Electronic order processing (Number of electronic orders)	$                           172,500.00	$                       15.00	per orders	15	$                         225.00
Line item picking (Number of line items picked)	$                           300,000.00	$                          1.00	per line items	150	$                         150.00
Total Cost Allocated					$                     1,775.00
COUNTY
Activity Cost Pool (Activity Measure)	Total Cost	Activity Rates		No. of cost drivers	Cost Allocated
Customer deliveries (Number of deliveries)	$                           280,000.00	$                       70.00	per deliveries	40	$                     2,800.00
Manual order processing (Number of manual orders)	$                           195,000.00	$                       65.00	per orders	80	$                     5,200.00
Electronic order processing (Number of electronic orders)	$                           172,500.00	$                       15.00	per orders	0	$                                  -
Line item picking (Number of line items picked)	$                           300,000.00	$                          1.00	per line items	310	$                         310.00
Total Cost Allocated					$                     8,310.00