Worley Company buys surgical supplies from a variety ofmanufacturers and then resells and delivers these supplies tohundreds of hospitals. Worley sets its prices for all hospitals bymarking up its cost of goods sold to those hospitals by 7%. Forexample, if a hospital buys supplies from Worley that 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 itsselling and administrative expenses and provided a reasonableprofit. However, in the face of declining profits, Worley decidedto implement an activity-based costing system to help improve itsunderstanding of customer profitability. The company broke itsselling and administrative expenses into five activities asshown:

Activity Cost Pool (Activity Measure)	Total Cost		Total Activity
Customer deliveries (Number of deliveries)	$	712,000	8,000	deliveries
Manual order processing (Number of manual orders)		468,000	6,000	orders
Electronic order processing (Number of electronic orders)		220,000	11,000	orders
Line item picking (Number of line items picked)		740,000	400,000	line items
Other organization-sustaining costs (None)		650,000
Total selling and administrative expenses	$	2,790,000

Worley gathered the data below for two of the many hospitalsthat it serves—University and Memorial (each hospital purchasedmedical supplies that had cost Worley $32,000 to buy frommanufacturers):

	Activity
Activity Measure	University	Memorial
Number of deliveries	18	25
Number of manual orders	0	41
Number of electronic orders	17	0
Number of line items picked	140	240

Required:

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

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

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

4. Compute Worley’s customer margin for University and Memorial.(Hint: Do not overlook the $32,000 cost of goods sold thatWorley incurred serving each hospital.)