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:

Activity Cost Pool (Activity Measure)Total CostTotal ActivityCustomer deliveries (Number of deliveries)$500,0005,000deliveriesManual order processing (Number of manual orders)248,0004,000ordersElectronic order processing (Number of electronic orders)200,00012,500ordersLine item picking (Number of line items picked)450,000450,000line itemsOther organization-sustaining costs (None)602,000Total selling and administrative expenses$2,000,000

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 $30,000 to buy from manufacturers):

Activity

Activity MeasureUniversityMemorialNumber of deliveries1025Number of manual orders030Number of electronic orders150Number of line items picked120250

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 Worley's customer margin for University and Memorial. (Hint: Do not overlook the $30,000 cost of goods sold that Worley incurred serving each hospital.)