Exercise 3-9 Compute and Use Activity Rates to Determine the Costs of Serving Cu

Question

Exercise 3-9 Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO2, LO3]

Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to dozens of hospitals. In the face of declining profits, Med Max decided to implement an activity-based costing system to improve its understanding of the costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as shown below:

Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to dozens of hospitals. In the face of declining profits, Med Max decided to implement an activity-based costing system to improve its understanding of the costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as shown below:

Explanation / Answer

County General:

Customer deliveries =$3400

Manual order processing=$6400

Electronic order processing=$0

Line item picking=$465

Total activity costs=$10265

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