Exercise 3-9 Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO2, LO3]

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	$	467,500	5,500	deliveries
Manual order processing	Number of manual orders		360,000	4,500	orders
Electronic order processing	Number of electronic orders		214,500	13,000	orders
Line item picking	Number of line items picked		675,000	450,000	line items
Total selling and administrative expenses		$	1,717,000

Med Max gathered the data below for two of the many hospitals that it serves