**Worley Company: Activity-Based Costing and Customer Profitability Analysis****Overview:**Worley Company buys surgical supplies from various manufacturers, reselling and delivering them to hospitals. Typically, Worley marks up the cost of goods sold by 7%. For example, a product costing Worley $100 would sell to a hospital for $107.**Challenge:**The previous markup strategy was not yielding sufficient profits, leading Worley to implement an activity-based costing (ABC) system to improve customer profitability insights. The company categorized its selling and administrative expenses into five specified activities:**Activity Cost Pools and Measures:**| Activity Cost Pool | Total Cost | Total Activity ||-------------------------------------------|------------|-----------------|| Customer deliveries (Number of deliveries)| $336,000 | 4,000 deliveries|| Manual order processing (Number of manual orders) | $380,000 | 5,000 orders || Electronic order processing (Number of electronic orders) | $231,000 | 11,000 orders || Line item picking (Number of line items picked) | $693,000 | 420,000 line items || Other organization-sustaining costs (None) | $640,000 | — |Total Selling and Administrative Expenses: **$2,280,000****Data for Two Hospitals: University and Memorial**Worley analyzed two hospitals’ data—each purchased supplies costing Worley $39,000:| Activity Measure | University | Memorial ||----------------------------------------|------------|----------|| Number of deliveries | 12 | 30 || Number of manual orders | 0 | 47 || Number of electronic orders | 16 | 0 || Number of line items picked | 120 | 280 |**Required Calculations:**1. **Total Revenue:** Calculate the total revenue Worley would earn from University and Memorial.2. **Activity Cost Rates:** Deduce the activity cost rate for each activity cost pool.3. **Total Activity Costs:** Assess the total activity costs assigned to University and Memorial.4. **Customer's Cost and Profit Margin:** Ascertain Worley's customer cost for University and Memorial. Remember to include the $39,000 cost of goods sold for each hospital.These analyses should provide insights into the profitability and cost

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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 7%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $107 to purchase these supplies. For years, Worley believed the 7% 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 improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown: 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 Activity Measure Number of deliveries. Activity Worley gathered the data below for two of the many hospitals it serves-University and Memorial (each hospital purchased medical supplies that cost Worley $39,000 to buy from manufacturers): University 12 0 16 120 Total Cost Memorial 30 47 0 280 $ 336,000 380,000 231,000 693,000 640,000 $ 2,280,000 Total Activity 4,000 deliveries. 5,000 orders. 11,000 orders 420,000 line items. Number of manual orders Number of electronic orders. Number of line items picked Required: 1. Compute the total revenue Worley would receive from University and Memorial. 2. Compute the activity rate for each activity cost pool. 3. Compute the total activity costs assigned to University and Memorial. 4. Compute Worley's customer margin for University and Memorial. (Hint. Do not overlook the $39,000 cost of goods sold that Worley incurred serving each hospital.)