Worley Company buys surgical supplies from a variety ofmanufacturers and then resells and delivers these supplies tohundreds of hospitals. Worley sets its prices for all hospitals bymarking up its cost of goods sold to those hospitals by 6%. Forexample, if a hospital buys supplies from Worley that had costWorley $100 to buy from manufacturers, Worley would charge thehospital $106 to purchase these supplies. For years, Worleybelieved that the 6% markup covered its selling and administrativeexpenses and provided a reasonable profit. However, in the face ofdeclining profits Worley decided to implement an activity-basedcosting system to help improve its understanding of customerprofitability. The company broke its selling and administrativeexpenses into five activities as shown below: Activity Cost Pool(Activity Measure) Total Cost Total Activity Customer deliveries(Number of deliveries) $ 348,000 4,000 deliveries Manual orderprocessing (Number of manual orders) 380,000 5,000 ordersElectronic order processing (Number of electronic orders) 252,00014,000 orders Line item picking (Number of line items picked)742,500 450,000 line items Other organization-sustaining costs(None) 630,000 Total selling and administrative expenses $2,352,500 Worley gathered the data below for two of the manyhospitals that it serves—University and Memorial (both hospitalspurchased a total quantity of medical supplies that had cost Worley$35,000 to buy from its manufacturers): Activity Activity MeasureUniversity Memorial Number of deliveries 19 29 Number of manualorders 0 41 Number of electronic orders 16 0 Number of line itemspicked 180 230 Required: 1. Compute the total revenue that Worleywould receive from University and Memorial. 2. Compute the activityrate for each activity cost pool. (Round your answers to 2 decimalplaces.) 3. Compute the total activity costs that would be assignedto University and Memorial. (Round your intermediate calculationsand final answers to 2 decimal places.) 4. Compute Worley’scustomer margin for University and Memorial. (Hint: Do not overlookthe $35,000 cost of goods sold that Worley incurred serving eachhospital.) (Loss amount should be indicated with a minus sign.Round your intermediate calculations and final answers to 2 decimalplaces.)
