Exercise 7 10 Customer Profitability Analysis [LO7-3, L07-4, LO7-5 Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit However, in the face of declining profits, Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown Total Cost Total Activity Activity Cost Pool (Activity Measure) Customer deliveries (Number of deliveries) Manual order processing (Number of manual orders) Electronic order processing (Number of electronic orders) 209,00 11,000 orders Line item picking (Number of ine items picked) Other organization-sustaining costs (None) 656,000 8,800 deliveries 608,000 8,000 orders 687,500 450,090 line items 656,00 Total selling and administrative expenses $2,730, 500 Worley gathered the data below for two of the many hospitals that it serves-University and Memorial (each hospital purchased medical supplies that had cost Worley $38,000 to buy from manufacturers) Activity