I cannot understand how to solve this problem. I need the answers and how to arrive at the answers. Thanks. Denise

I cannot understand how to solve this problem. I need the answers and how to arrive at the answers. Thanks. Denise

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Med Max buys surgical supplies from a variety of manufacturers and then resells and delivers these
supplies to hundreds of hospitals. Med Max 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 Med Max that had
cost Med Max $100 to buy from manufacturers, Med Max would charge the hospital $105 to purchase
these supplies.
For years, Med Max believed that the 5% markup covered its selling and administrative expenses and
provided a reasonable profit. However, in the face of declining profits Med Max 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 below:
Activity Cost
Pool
Activity
Measure
Total Cost
Total Activity
Customer
deliveries
Number of
deliveries
$
400,000
5,000 deliveries
Manual order
processing
Number of
manual orders
300,000
4,000 orders
Electronic order
processing
Number of
electronic orders
200,000
12,500 orders
Line item picking
Number of line
items picked
500,000
400,000 line items
Other
organization-
sustaining costs
NA
600,000
Total selling and
administrative
expenses
$
2,000,000
Med Max gathered the data below for two of the many hospitals that it serves—City General and County
General (each hospital purchased medical supplies that had cost Med Max $30,000 to buy from its
manufacturers):
Activity
Activity Measure
City General
County General
Number of deliveries
10
20
Number of manual
orders
0
40
Number of electronic
orders
10
0
Number of line items
picked
100
260
Required:
1.
Compute the total revenue that Med Max would receive from City General and County General.
(Omit
the “$” sign in your response.)
Total Revenue
City General
$
County General
$

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2.
Compute the activity rate for each activity cost pool.
(Round the “Line item picking” to 2 decimal
places. Omit the “$” sign in your response.)
Activity Cost Pool
Activity Rate
Customer deliveries
$ per delivery
Manual order
processing
$ per manual order
Electronic order
processing
$ per electronic order
Line item picking
$ per line item picked
3.
Compute the total activity costs that would be assigned to City General and County General.
(Round
your intermediate calculations to 2 decimal places and final answers to the nearest dollar
amount. Omit the “$” sign in your response.)
Total Activity Costs
City General
$
County General
$
4.
Compute Med Max’s customer margin for City General and County General. (Hint: Do not overlook
the $30,000 cost of goods sold that Med Max incurred serving each hospital.)
(Loss amount should
be indicated with a minus sign. Round your intermediate calculations to 2 decimal places and
final answers to the nearest dollar amount. Omit the “$” sign in your response.)
Customer Margin
City General
$
County General
$

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