Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers...
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Accounting
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
$ 313,900
4,300
deliveries
Manual order processing
Number of manual orders
224,400
3,300
orders
Electronic order processing
Number of electronic orders
180,540
11,800
orders
Line item picking
Number of line items picked
379,500
330,000
line items
Total selling and administrative expenses
$ 1,098,340
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
20
40
Number of manual orders
0
80
Number of electronic orders
20
0
Number of line items picked
120
280
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