Question

Assume a service company has implemented an activity-based costing system with five activities as shown below:

Activity Cost Pool (Activity Measure)	Total Cost			Total Activity
Customer deliveries (Number of deliveries)	$	400,000		8,000	deliveries
Manual order processing (Number of manual orders)	$	280,000		5,000	manual orders
Electronic order processing (Number of electronic orders)	$	150,000		15,000	electronic orders
Line item picking (Number of line items picked)	$	450,000		375,000	line items
Other organization-sustaining costs (None)	$	300,000

The company serves numerous customers, two of which include Hospital A and Hospital B. The activity demands pertaining to these two customers are as follows:

	Activity
Activity Measure	Hospital A	Hospital B
Number of deliveries	12	25
Number of manual orders	0	30
Number of electronic orders	15	0
Number of line items picked	120	250

How much total activity cost should be assigned to Hospital A for internal management purposes?

a.1,052

b. 992

c. 942

d. 894

Answer 1

Activity Cost Pool (Activity Measure)	Total Cost	Total Activity		Activity Rate (Total cost/Total activity)		Activity of Hospital A	Allocated cost to Hospital A (Activity Rate x Activity of Hospital A
Customer deliveries (Number of deliveries)	400,000	8,000	deliveries	50	Per delivery	12	600
Manual order processing (Number of manual orders)	280,000	5,000	manual orders	56	Per manual order	0	0
Electronic order processing (Number of electronic orders)	150,000	15,000	electronic orders	10	Per electronic order	15	150
Line item picking (Number of line items picked)	450,000	375,000	line items	1.2	Per line item	120	144
Total							894

894 activity cost should be assigned to Hospital A for internal management purposes.

Correct option is d.

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!