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	Activity Measure	Total Cost		Total Activity
Customer deliveries	Number of deliveries	$	439,900	5,300	deliveries
Manual order processing	Number of manual orders		335,400	4,300	orders
Electronic order processing	Number of electronic orders		208,640	12,800	orders
Line item picking	Number of line items picked		602,000	430,000	line items
Total selling and administrative expenses		$	1,585,940

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	10	20
Number of manual orders	0	40
Number of electronic orders	10	0
Number of line items picked	130	290

Required:

1a.	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

1b.	Compute the total activity costs that would be assigned to City General and County General. (Do not round intermediate calculations.)

City General

Activity Cost Pool	ABC Cost
Customer deliveries
Manual order processing
Electronic order processing
Line item picking
Total activity costs

County General:

Activity Cost Pool	ABC Cost
Customer deliveries
Manual order processing
Electronic order processing
Line item picking
Total activity costs

Answer 1

Answer:-1a)-

Calculation of actvity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Customer deliveries	No. of deliveries	439900	5300 deliveries	83
Manual order processing	No. of manual orders	335400	4300 orders	78
Electronic order processing	No. of electronic orders	208640	12800 orders	16.3
Line item picking	No. of line item picked	602000	430000 line items	1.4
	Total	1585940

1b)-

Particulars	City General	County General
	$	$
Customer deliveries	10*$83=830	20*$83=1660
Manual order processing	0*$75=0	40*$78=3120
Electronic order processing	10*$16.3=163	0*$16.3=0
Line item picking	130*$1.4=182	290*1.4=406
Total Activity costs	1175	5186