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 $ 400,000 300,000 200,000 500,000 $1,400,000 Total activity 5,000 deliveries 4,000 orders 12,500 orders 400,000 line items Med Max gathered the data below for two of the many hospitals that it serves-City General and County General: Activity City County Activity Measure General General Number of deliveries Number of manual orders 0 Number of electronic orders Number of line items picked 100 260 10 20 40 D 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

Answer 1

Req 1	Activity Cost pool	Total Cost	Total Activity	Activity Rate
	Customer Del.	400,000	5,000	80.00	per delivery
	Manual OP	300,000	4,000	75.00	per manual order
	Elecetronic OP	200,000	12,500	16.00	per electronic Order
	Line Item Picking	500,000	400,000	1.25	per line item picked
Req 2			City General	County General
	Activity Cost pool	Activity Rate	Activity	Cost assigned	Activity	Cost assigned
	Customer Del.	80.00	10	800	20	1,600
	Manual OP	75.00	0	-	40	3,000
	Elecetronic OP	16.00	10	160	0	-
	Line Item Picking	1.25	100	125	260	325
	Total			1,085		4,925