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 |
Activity Measure |
Total Cost |
Total Activity |
| Customer deliveries |
Number of deliveries |
$ |
280,000 |
4,000 |
deliveries |
| Manual order processing |
Number of manual orders |
|
195,000 |
3,000 |
orders |
| Electronic order processing |
Number of electronic orders |
|
172,500 |
11,500 |
orders |
| Line item picking |
Number of line items picked |
|
300,000 |
300,000 |
line items |
| Total selling and administrative expenses |
|
$ |
947,500 |
|
|
|
Med Max gathered the data below for two of the many hospitals
that it serves—City General and County General:
|
Activity |
| Activity Measure |
City General |
County General |
| Number of deliveries |
20 |
40 |
| Number of manual orders |
0 |
80 |
| Number of electronic orders |
15 |
0 |
| Number of line items picked |
150 |
310 |
|
Compute the activity rate for each activity cost pool. (Round
your answers to 2 decimal places.)
|
|
| Activity Cost Pool |
Activity Rate |
| Customer deliveries |
|
per delivery |
| Manual order processing |
|
per manual order |
| Electronic order processing |
|
per electronic order |
| Line item picking |
|
per line item picked |
|
Compute the total activity costs that would be assigned to City
General and County General. (Do not round intermediate
calculations.)
|
|
|
ABC Cost |
| Activity Cost Pool |
City General |
County General |
| Customer deliveries |
|
|
| Manual order processing |
|
|
| Electronic order processing |
|
|
| Line item picking |
|
|
| Total activity costs |
$0 |
$0 |
|