EXERCISE 4–9 Compute and Use Activity Rates to Determine the Costs of Serving Customers LO4–2, LO4–3 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:

Med Max gathered the data below for two of the many hospitals that it serves—City General and County General:

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.

3. Describe the purchasing behaviors that are likely to increase Med Max’s cost to serve its customers.

Estimated total manufacturing overhead Estimated total direct labor-hours Supporting direct labor