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For years, Worley believed that the 8% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining

For years, Worley believed that the 8% 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:

Activity Cost Pool (Activity Measure) Total Cost Total Activity
Customer deliveries (Number of deliveries) $ 510,000 6,000 deliveries
Manual order processing (Number of manual orders) 355,000 5,000 orders
Electronic order processing (Number of electronic orders) 275,000 11,000 orders
Line item picking (Number of line items picked) 1,128,000 470,000 line items
Other organization-sustaining costs (None) 630,000
Total selling and administrative expenses $ 2,898,000

Worley gathered the data below for two of the many hospitals that it servesUniversity and Memorial (each hospital purchased medical supplies that had cost Worley $40,000 to buy from manufacturers):

Activity

Activity Measure University Memorial
Number of deliveries 15 30
Number of manual orders 0 41
Number of electronic orders 18 0
Number of line items picked 110 230

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worleys customer margin for University and Memorial. (Hint: Do not overlook the $40,000 cost of goods sold that Worley incurred serving each hospital.)

Compute the total revenue that Worley would receive from University and Memorial.

Total Revenue
University
Memorial

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
Total Activity Costs
University
Memorial

Customer Margin
University
Memorial

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