Question: C 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 5%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. 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) 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 selling and administrative expenses Total Cost Total Activity $500,000 5,000 deliveries $248,000 4,000 orders $200,000 12,500 orders $450,000 450,000 line items 602,000 $2,000,000 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 cost Worley $30,000 to buy from its manufacturers): Activity University Memorial Activity Measure Number of deliveries 10 Number of manual orders 0 Number of electronic orders 15 Number of line items picked 120 25 30 0 250 Compute the total activity costs that would be assigned to University and Memorial.
Question: C 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 5%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. 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) 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 selling and administrative expenses Total Cost Total Activity $500,000 5,000 deliveries $248,000 4,000 orders $200,000 12,500 orders $450,000 450,000 line items 602,000 $2,000,000 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 cost Worley $30,000 to buy from its manufacturers): Activity University Memorial Activity Measure Number of deliveries 10 Number of manual orders 0 Number of electronic orders 15 Number of line items picked 120 25 30 0 250 Compute the total activity costs that would be assigned to University and Memorial.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question: C
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 5%. For example, if a hospital buys
supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would
charge the hospital $105 to purchase these supplies.
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)
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 selling and administrative expenses
Total Cost
Total Activity
$500,000
5,000 deliveries
$248,000
4,000 orders
$200,000
12,500 orders
$450,000
450,000 line items
602,000
$2,000,000
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 cost Worley
$30,000 to buy from its manufacturers):
Activity
University Memorial
Activity Measure
Number of deliveries
10
Number of manual orders
0
Number of electronic orders
15
Number of line items picked 120
25
30
0
250
Compute the total activity costs that would be assigned to University and Memorial.
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