Question
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
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 | $ 495,900 | 5,700 | deliveries |
Manual order processing | Number of manual orders | 385,400 | 4,700 | orders |
Electronic order processing | Number of electronic orders | 220,440 | 13,200 | orders |
Line item picking | Number of line items picked | 540,500 | 470,000 | line items |
Total selling and administrative expenses | $ 1,642,240 |
Med Max gathered the data below for two of the many hospitals that it servesCity General and County General:
Activity Measure | Activity | |
---|---|---|
City General | County General | |
Number of deliveries | 15 | 30 |
Number of manual orders | 0 | 60 |
Number of electronic orders | 20 | 0 |
Number of line items picked | 120 | 280 |
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.
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