ACC5200/Summer21/Chapter 7: Homework Problems 1. Customer profitability analysis 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 8%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies. For years, Worley believed that the 8% 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: Total Activity 4,000 deliveries Activity Cost Pool (Activity Measure) Customer deliveries (Number of deliveries) Manual order processing (Number of manual orders) Electronic order processing (Number of electronic orders) Line item picking (Number of line items picked) Other organization-sustaining costs (None) Total Cost $328,000 8,000 orders 000 264,000 12,000 orders 1,032,000 430,000 line items 640,000 Total selling and administrative expenses $2,888,000 Worley gathered the data below for two of the many hospitals that it serves-University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $32,000 to buy from its manufacturers): Activity Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked University Memorial 13 91- 200 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. 2. Compute the activity rate for each activity cost pool.
ACC5200/Summer21/Chapter 7: Homework Problems 1. Customer profitability analysis 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 8%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies. For years, Worley believed that the 8% 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: Total Activity 4,000 deliveries Activity Cost Pool (Activity Measure) Customer deliveries (Number of deliveries) Manual order processing (Number of manual orders) Electronic order processing (Number of electronic orders) Line item picking (Number of line items picked) Other organization-sustaining costs (None) Total Cost $328,000 8,000 orders 000 264,000 12,000 orders 1,032,000 430,000 line items 640,000 Total selling and administrative expenses $2,888,000 Worley gathered the data below for two of the many hospitals that it serves-University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $32,000 to buy from its manufacturers): Activity Activity Measure Number of deliveries Number of manual orders Number of electronic orders Number of line items picked University Memorial 13 91- 200 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. 2. Compute the activity rate for each activity cost pool.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:ACC5200/Summer21/Chapter 7: Homework Problems
1. Customer profitability analysis
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 8%. For example, if a hospital buys supplies from
Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital
$108 to purchase these supplies.
For years, Worley believed that the 8% 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:
Total Activity
4,000 deliveries
Total Cost
Activity Cost Pool (Activity Measure)
Customer deliveries (Number of deliveries)
Manual order processing (Number of manual
orders)
Electronic order processing (Number of
electronic orders)
Line item picking (Number of line items
picked)
Other organization-sustaining costs (None)
$328,000
624,000
8,000 orders
264,000
12,000 orders
1,032,000
430,000 line items
Total selling and administrative expenses
$2,888,000
Worley gathered the data below for two of the many hospitals that it serves-University and
Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley
$32,000 to buy from its manufacturers):
Activity
University
Memorial
Activity Measure
Number of deliveries
Number of manual orders
13
21
46.
Number of electronic orders
16.
0.
Number of line items picked
Required:
1. Compute the total revenue that Worley would receive from University and Memorial.
2. Compute the activity rate for each activity cost pool.
1.
Transcribed Image Text: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
$32,000 cost of goods sold that Worley incurred serving each hospital.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education