Question

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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 Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked Total Cost $ 413,100 311,600 202,860 533,000 Total Activity 5,100 deliveries 4.100 orders 12,600 orders 410,000 line items Total selling and administrative expenses $1,460,560 Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity City General County General Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked 20 Required: 1. 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

Answer 1

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Calculation of activity rate for each cost pool. Activity based overhead rate = Estimated Overhead / Expected use of cost driver (A) (B) Expected use of cost driver (A)/(B) Activity based overhead rate Activity cost pool Estimated Overhead Customer Deliveries Manual Order Processing Electronic Order Processing Line Item Picking $ $ $ $ 413,100 311,600 202,860 533,000 1,460,560 5,100 Deliveries 4,100 Orders 12,600 Orders 410,000 Line Item $ $ $ $ 81.00 Per deliveries 76.00 Per Order 16.10 Per Order 1.30 Per line otem 2 Calculation of total activity cost (A) x (B) Activity cost pool Customer Deliveries Manual Order Processing Electronic Order Processing Line Item Picking Total Activity Costs City General Activity based Expected Cost driver overhead rate 15 $ 81.00 0 $ 76.00 20 $ 16.10 110 $ 1.30 Cost Assigned $ 1,215.00 $ 0.00 $ 322.00 $ 143.00 $ 1,680.00 (A) x (B) Activity cost pool Customer Deliveries Manual Order Processing Electronic Order Processing Line Item Picking Total Activity Costs (A) (B) County General Activity based Expected Cost driver overhead rate 30 $ 81.00 60 $ 76.00 0 $ 16.10 270 $ 1.30 T Cost Assigned $ 2,430.00 $ 4,560.00 $ 0.00 $ 351.00 $ 7,341.00