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 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: Activity Cost Pool (Activity Measure) Total Cost Total Activity Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries Manual order processing (Number of manual orders) 248,000 4,000 orders Electronic order processing (Number of electronic orders) 200,000 12,500 orders Line item picking (Number of line items picked) 450,000 450,000 line items Other organization-sustaining costs (None) 602,000 Total selling and administrative expenses $ 2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Measure Activity University Memorial Number of deliveries 10 25 Number of manual orders 0 30 Number of electronic orders 15 0 Number of line items picked 120 250 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. 2. Compute the activity rate for each activity cost pool. 3. Compute the total activity costs that would be assigned to University and Memorial. Please use excel, while showing formula so I can understand how it is done.

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 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: Activity Cost Pool (Activity Measure) Total Cost Total Activity Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries Manual order processing (Number of manual orders) 248,000 4,000 orders Electronic order processing (Number of electronic orders) 200,000 12,500 orders Line item picking (Number of line items picked) 450,000 450,000 line items Other organization-sustaining costs (None) 602,000 Total selling and administrative expenses $ 2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Measure Activity University Memorial Number of deliveries 10 25 Number of manual orders 0 30 Number of electronic orders 15 0 Number of line items picked 120 250 Required: 1. Compute the total revenue that Worley would receive from University and Memorial. 2. Compute the activity rate for each activity cost pool. 3. Compute the total activity costs that would be assigned to University and Memorial. Please use excel, while showing formula so I can understand how it is done.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 14E: Many different businesses employ markup on cost to arrive at a price. For each of the following...

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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:

Activity Cost Pool (Activity Measure)	Total Cost	Total Activity
Customer deliveries (Number of deliveries)	$ 500,000	5,000	deliveries
Manual order processing (Number of manual orders)	248,000	4,000	orders
Electronic order processing (Number of electronic orders)	200,000	12,500	orders
Line item picking (Number of line items picked)	450,000	450,000	line items
Other organization-sustaining costs (None)	602,000
Total selling and administrative expenses	$ 2,000,000

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers):

Activity Measure	Activity
University	Memorial
Number of deliveries	10	25
Number of manual orders	0	30
Number of electronic orders	15	0
Number of line items picked	120	250

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

Please use excel, while showing formula so I can understand how it is done.

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