# Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals.

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 7%. For example, if a hospital buys supplies from Worley that had cost Worley \$100 to buy from manufacturers, Worley would charge the hospital \$107 to purchase these supplies.

For years, Worley believed that the 7% 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 below:

Activity Cost Pool (Activity Measure)Total CostTotal Activity  Customer deliveries (Number of deliveries)\$498,0006,000 deliveries  Manual order processing (Number of manual orders) 365,0005,000 orders  Electronic order processing (Number of electronic orders) 240,00012,000 orders  Line item picking (Number of line items picked) 1,056,000440,000 line items  Other organization-sustaining costs (None) 700,000       Total selling and administrative expenses\$2,859,000

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley \$38,000 to buy from its manufacturers):

Activity

Activity MeasureUniversityMemorial  Number of deliveries16          26            Number of manual orders0          50            Number of electronic orders20          0            Number of line items picked120          230

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

2.Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

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

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