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 6%. For example, if a hospita buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $106 to purchase these supplies. For years, Worley believed the 6% 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 Worley gathered the data below for two of the many hospitals it serves-University and Memorial (each hospital purchased medical supplies that cost Worley $34,000 to buy from manufacturers): Activity University 13 0 19 170 Complete this question by Total Cost $ 581,000 420,000 336,000 765,000 600,000 $ 2,702,000 Activity Measure Number of deliveries 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. Memorial 23 43 0 300 Total Activity 7,000 deliveries 6,000 orders 14,000 orders. 450,000 line items. 4. Compute Worley's customer margin for University and Memorial. (Hint. Do not overlook the $34,000 cost of goods sold that Worley incurred serving each hospital.) tabe below

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Chapter1: Financial Statements And Business Decisions
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The image shows a table and navigation buttons on a webpage, suitable for an educational context.

**Table: Customer Margin**

- **University**
- **Memorial**

The table contains two entries labeled "University" and "Memorial" under the "Customer Margin" column, with corresponding placeholders for data entry or display.

**Navigation Buttons:**

- A blue button labeled "< Required 3" on the left side indicating previous navigation or selection.
- A gray button labeled "Required 4 >" on the right side, possibly disabled, indicating the next navigation step or selection.

There are no graphs or diagrams in this image.
Transcribed Image Text:The image shows a table and navigation buttons on a webpage, suitable for an educational context. **Table: Customer Margin** - **University** - **Memorial** The table contains two entries labeled "University" and "Memorial" under the "Customer Margin" column, with corresponding placeholders for data entry or display. **Navigation Buttons:** - A blue button labeled "< Required 3" on the left side indicating previous navigation or selection. - A gray button labeled "Required 4 >" on the right side, possibly disabled, indicating the next navigation step or selection. There are no graphs or diagrams in this image.
**Worley Company Case Study on Activity-Based Costing for Educational Purposes**

Worley Company purchases surgical supplies from various manufacturers and resells them to numerous hospitals, adding a 6% markup to cover selling and administrative expenses. For instance, if a hospital procures supplies worth $100 from Worley, the charge would be $106.

Historically, Worley relied on this 6% markup, but due to declining profits, they transitioned to an activity-based costing system to gain insights into customer profitability. The expenses were categorized into five activities:

| Activity Cost Pool                    | Total Cost   | Total Activity       |
|---------------------------------------|--------------|----------------------|
| Customer deliveries                   | $581,000     | 7,000 deliveries     |
| Manual order processing               | $420,000     | 6,000 orders         |
| Electronic order processing           | $336,000     | 14,000 orders        |
| Line item picking                     | $765,000     | 450,000 line items   |
| Other organization-sustaining costs   | $600,000     | -                    |
| **Total selling and administrative expenses** | **$2,702,000** | - |

Worley assessed data from two hospitals, University and Memorial, where each purchased supplies costing Worley $34,000:

| Activity Measure          | University | Memorial |
|---------------------------|------------|----------|
| Number of deliveries      | 13         | 23       |
| Number of manual orders   | 0          | 43       |
| Number of electronic orders| 19        | 0        |
| Number of line items picked| 170       | 300      |

**Required Calculations:**

1. Compute the total revenue from University and Memorial.
2. Determine the activity rate for each activity cost pool.
3. Allocate the total activity costs to University and Memorial.
4. Calculate the customer margin for University and Memorial, considering the $34,000 cost of goods sold.

Utilize the interactive section below to input your answers.
Transcribed Image Text:**Worley Company Case Study on Activity-Based Costing for Educational Purposes** Worley Company purchases surgical supplies from various manufacturers and resells them to numerous hospitals, adding a 6% markup to cover selling and administrative expenses. For instance, if a hospital procures supplies worth $100 from Worley, the charge would be $106. Historically, Worley relied on this 6% markup, but due to declining profits, they transitioned to an activity-based costing system to gain insights into customer profitability. The expenses were categorized into five activities: | Activity Cost Pool | Total Cost | Total Activity | |---------------------------------------|--------------|----------------------| | Customer deliveries | $581,000 | 7,000 deliveries | | Manual order processing | $420,000 | 6,000 orders | | Electronic order processing | $336,000 | 14,000 orders | | Line item picking | $765,000 | 450,000 line items | | Other organization-sustaining costs | $600,000 | - | | **Total selling and administrative expenses** | **$2,702,000** | - | Worley assessed data from two hospitals, University and Memorial, where each purchased supplies costing Worley $34,000: | Activity Measure | University | Memorial | |---------------------------|------------|----------| | Number of deliveries | 13 | 23 | | Number of manual orders | 0 | 43 | | Number of electronic orders| 19 | 0 | | Number of line items picked| 170 | 300 | **Required Calculations:** 1. Compute the total revenue from University and Memorial. 2. Determine the activity rate for each activity cost pool. 3. Allocate the total activity costs to University and Memorial. 4. Calculate the customer margin for University and Memorial, considering the $34,000 cost of goods sold. Utilize the interactive section below to input your answers.
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