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:

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Customer deliveries	Number of deliveries	$	400,000	5,000	deliveries
Manual order processing	Number of manual orders		300,000	4,000	orders
Electronic order processing	Number of electronic orders		200,000	12,500	orders
Line item picking	Number of line items picked		500,000	400,000	line items
Total selling and administrative expenses		$	1,400,000

Med Max gathered the data below for two of the many hospitals that it servesCity 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	100	260

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.