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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
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 For example, if a hospital buys supplies from Worley that cost Worley $ to buy from manufacturers, Worley would charge the hospital $ to purchase these supplies.
For years, Worley believed that the markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits, Worley decided to implement an activitybased 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 $ deliveries
Manual order processing Number of manual orders orders
Electronic order processing Number of electronic orders orders
Line item picking Number of line items picked line items
Other organizationsustaining costs None
Total selling and administrative expenses $
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 $ to buy from manufacturers:
Activity Measure Activity
University Memorial
Number of deliveries
Number of manual orders
Number of electronic orders
Number of line items picked
Required:
Compute the total revenue that Worley would receive from University and Memorial.
Compute the activity rate for each activity cost pool.
Compute the total activity costs that would be assigned to University and Memorial.
Compute Worleys customer margin for University and Memorial. Hint: Do not overlook the $ cost of goods sold that Worley incurred serving each hospital.Worley Company buys surgical supplies from a varlety of manufacturers and then resells and delivers these supplies to
hundreds of hospitals. Worley sets its prices for all hospltals by marking up its cost of goods sold to those hospitals by
For example, If a hospltal buys supplies from Worley that cost Worley $ to buy from manufacturers, Worley would
charge the hospital $ to purchase these supplies.
For years, Worley belleved that the markup covered Its selling and administratlve expenses and provided a reasonable
profit. However, In the face of decilning profits, Worley decided to Implement an actlvitybased costing system to help
Improve its understanding of customer profitability. The company broke Its selling and administrative expenses into five
actlvitles as shown:
Worley gathered the data below for two of the many hospltals that it servesUniversity and Memorlal each hospital
purchased medical supplies that had cost Worley $ to buy from manufacturers:
Required:
Compute the total revenue that Worley would recelve from Unlversity and Memorlal.
Compute the actlvity rate for each activity cost pool.
Compute the total activity costs that would be assigned to University and Memorlal.
Compute Worley's customer margin for University and Memorlal. HInt Do not overlook the $ cost of goods sold
that Worley Incurred serving each hospltal.
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