| 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 below: | Activity Cost Pool (Activity Measure) | Total Cost | Total Activity | | Customer deliveries (Number of deliveries) | $ | 567,000 | 7,000 | deliveries | | Manual order processing (Number of manual orders) | | 684,000 | 9,000 | orders | | Electronic order processing (Number of electronic orders) | | 221,000 | 13,000 | orders | | Line item picking (Number of line items picked) | | 1,034,000 | 440,000 | line items | | Other organization-sustaining costs (None) | | 640,000 | | | | | | | | | | Total selling and administrative expenses | $ | 3,146,000 | | | | | | | | | | | Worley gathered the data below for two of the many hospitals that it servesUniversity and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $38,000 to buy from its manufacturers) | Activity | | Activity Measure | University | Memorial | | Number of deliveries | 12 | 27 | | Number of manual orders | 0 | 48 | | Number of electronic orders | 16 | 0 | | Number of line items picked | 100 | 210 | | | 1. Compute the total revenue that Worley would receive from University and Memorial 2.compute the activity rate for each activity cost pool | | | | | 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 | | 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 $38,000 cost of goods sold that Worley incurred serving each hospital. |
