60.1K

Verified Solution

Link Copied!

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 $9\%.$ For example, if a hospital buys supplies from Worley that cost Worley $$100$ to buy from manufacturers, Worley would charge the hospital $$109$ to purchase these supplies.

For years, Worley believed that the $9\%$ 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 Cost Total Activity

Customer deliveries $($Number of deliveries$)$ $ $240,0003,000$ deliveries

Manual order processing $($Number of manual orders$)380,0005,000$ orders

Electronic order processing $($Number of electronic orders$)160,00010,000$ orders

Line item picking $($Number of line items picked$)906,500490,000$ line items

Other organization$-$sustaining costs $($None$)620,000$

Total selling and administrative expenses $ $2,306,500$

Worley gathered the data below for two of the many hospitals that it serves$$University and Memorial $($each hospital purchased medical supplies that had cost Worley $$33,000$ to buy from manufacturers$)$:

Activity Measure Activity

University Memorial

Number of deliveries $1830$

Number of manual orders $049$

Number of electronic orders $190$

Number of line items picked $170220$

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$$s customer margin for University and Memorial. $($Hint: Do not overlook the $$33,000$ cost of goods sold that Worley incurred serving each hospital.$)$

Answer & Explanation Solved by verified expert

See Answer