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The Activity rate based on activity measures for each activity pool.
Answer to Problem 10E
Solution: The Statement showing the activity rate for each activity cost pool shall be follows:
Here, Other organization-sustaining cost is a pool which is not allocated to products as it is related to sustaining of the organization which is not directly related to products.
Explanation of Solution
Given: The Estimated
Formula: The formula used in the given problem for computing the activity rate is as follows:
Activity rate =
Calculation: The Computation for activity rate for each activity pool shall be computed as follows:
- Customer Deliveries:
=
Manual Order processing:
=
Electronic Order processing:
=
Line item picking:
=
The activity related to organization sustainability shall not allocated o product as it is related to organization as a whole and cannot be directly allocated to product.
To conclude, the activity rate is based on actual overheads incurred and activity measures undertaken during the period.
Requirement3:
The Activity cost assigned to Hospitals University and Memorial.
Answer to Problem 10E
Solution: The Statement showing the assignment of activity cost to both the hospitals shall be computed as follows:
Explanation of Solution
Given: The Activity rate of each activity cost pool and actual activity undertaken under each of both the hospitals have been given in the problem.
Calculation: The Computation for assignment of activity cost of each pool under both the hospitals has been explained as under:
- Customer deliveries (based on number of deliveries):
University (10 deliveries@$100): $ 1,000
Memorial (25 deliveries@ $100): $ 2,500
Manual order Processing (based on manual order):
Memorial (30 orders @ $62): $1,860
Electronic Order Processing (Based on Electronic order):
University (15 orders @ $16): $240
Line item Picking (based onnumber of line items):
University (120 items @$ 1.00): $120
Memorial (250 items @ $1.00): $ 250
The activity cost assigned for each activity shall be computed by multiplying the actual activity undertaken for each jobs with the activity rate for respective activity pool.
To conclude, it must be said that overheads are assigned on the basis of actual activity undertaken for the products.
Requirement4:
The customer margin of each hospital.
Answer to Problem 10E
Solution: The statement showing customer margin for each hospital shall be computed as follows:
Explanation of Solution
The activity cost assigned and cost of goods sold and revenue generated from each hospital has been given in the problem. The Customer margin shall be computed by deducting the cost of goods sold and activity cost assigned to hospitals from sales revenue generated from each hospital.
Other organizational cost relating to organizational sustainability shall not be deducted from the customer margin as it is not related to customer but to the organization as a whole.
To conclude, it must be said that the customer margin is net of revenue and cost of goods sold and activity cost assigned.
Requirement5:
The purchasing behavior of the hospitals
Answer to Problem 10E
Solution: The purchasing memorial is somehow not desirable and least profitable as it is apparent from the computation of customer margin. The Memorial hospital is incurring a loss of $3,110 due to purchasing behavior.
Explanation of Solution
The Purchasing behavior of Memorial is not desirable in the sense that it is based on manual order processing rather than electronic order processing, which resulted in higher order
To conclude, it must be said that the Purchasing behavior of the customer will affect the customer margin generated.
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Chapter 7 Solutions
MANAGERIAL ACCOUNTING W/ACCESS >IP<
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