Question

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supples to hundreds of hospitals, Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 9%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $109 to purchase itse supplies For years, Worley believed that the markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity based costing wystem to help improve to understanding of customer profitability. The company broke is selling and administrative expenses into live activities as shown below Activity Com Polere) Tot Com TAVY Customer deliveries Number of deliveries) 5.000 6.000 divers Manual order processing Number of manual orders) 312.000 4000 orders Electronic order processing Number of electronice orders) 0.000 14.000 orders Line tempiking Number of the tempel 705.000 470.000 items Other organisionering costs More) 700 000 Total selling and administrative expenses 2.500.000 Woney gathered the data below for two of the many hospitals that it serves University and Memorial (bom hospitais purchased a total quantity of medical supplies that had cost Worley 831,000 to buy from its manufacturers Act Activity Measure Univery Memorial Number of devens Number of manual orders Number of orders 1 0 15 130 280 Required: 1. Compute the total revenue that Worley would receive from University and Memorial 2. Computerworth cost pool Round your answers to decimal places

Answer 1

Answer-1- Compute the total revenue that Worley would receive from University and Memorial as follows:-

Total revenue= Cost of goods sold+9% mark-up

= $31,000+9% of $31,000

= $31,000+ $2,790

=$ 33,790

2-Compute the activity rate for each activity cost pool as follows:-

Activity cost pool	Activity measure	Total cost	Total activity		Activity rate
Customer deliveries	Number of deliveries	$534,000	6,000	deliveries	$89	Per delivery
Manual order processing	Number of manual orders	$312,000	4,000	orders	$78	Per manual order
Electronic order processing	Number of electronic orders	$308,000	14,000	orders	$22	Per electronic order
Line item picking	Number of line items picked	$705,000	470,000	orders	$1.50	Per line item picked

3-Compute

Activity cost pool	Activity rate		University Total activity		Total Cost	Memorial Total activity		Total cost
Customer deliveries	$89	Per delivery	15	deliveries	$1,335	27	deliveries	2,403
Manual order processing	$78	Per manual order	0	manual order	$0	48	manual order	$3,744
Electronic order processing	$22	Per electronic order	15	electronic order	$330	0	electronic order	$0
Line item picking	$1.50	Per line item picked	130	line items picked	$195	280	line items picked	$420
		Total Activity Cost			$1,860			$6,567

4- Compute Worley's customer margin for university and memorial as follows:-

Details	University	Memorial
Revenue	$33,790	$33,790
Less:- Cost of goods sold	$31,000	$31,000
Gross margin	$2,790	$2,790
Less: Activity costs	$1,860	$6,567
Customer Margin	$930	($3,777)

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