Question

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.

Answer 1

Check the explanation

Step-by-step explanation:

1. Revenue received would be 8% more than the cost incurred,

Since cost incurred us $35,000, Revenue received from both hospitals is 35000 * (1+8%) = 35000 * 1.08 = 37800

2. Activity rate is calculated as total cost for that activity / total activity

Activity rate for Customer deliveries = 450000 / 5000 = 90

Similarly other activity costs are calculated in the table below

Activity Cost Pool Activity Rate

Customer deliveries 90 Per delivery

Manual Order processing 73 Per manual order

Electronic order processing 19 Per electronic order

Line item picking 1.4 Per line item picked

3. Total activity costs for hospitals is calculated below

University = 90 * 17 + 73 * 0 + 19 * 15 + 1.4 * 160 = 2,039

Memorial = 90 * 27 + 73 * 43 + 19 * 0 + 1.4 * 250 = 5,919

4. Profit = Total revenue - Total costs

University = 37800 - 35000 - 2039 = 761

Margin = Profit / Revenue = 2.01%

Memorial = 37800 - 35000 - 5919 = -3119

Margin = Profit / Revenue = -8.25%