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Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...

Allocating Selling and Administrative Expenses using Activity-Based Costing

Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows:

Price$690 per unit

Cost of goods sold(410)

Gross profit$280 per unit

In addition, the company incurs selling and administrative expenses of $263,410. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are:

ActivityBudgeted Activity CostActivity Base

Customer service $30,030 Number of service requests

Sales order processing 27,880 Number of sales orders

Advertising support 205,500 Number of ads placed

Total activity cost $263,410  

Activity-base usage and unit volume information for the three customers is as follows:

The WarehouseKosmo Co.Supply UniverseTotal

Number of service requests40  10 160 210

Number of sales orders230  100 490 820

Number of ads placed20  20 110 150

Unit volume690  690 690 2,070

Required:

1.   Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.

Activity Rate

Customer Service$per serv. req.

Sales Order Processing$per sls. order

Advertising Support$per ad

2. Determine the activity costs allocated to the three customers, using the activity rates in (1).

Activity Costs

The Warehouse$

Kosmo Co.$

Supply Universe$

3.   Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and operating income associated with each customer.

Shrute Inc.

Customer Profitability Report

For the Year Ended December 31

The WarehouseKosmo Co.Supply Universe

Revenues$$$

Cost of goods sold

Gross profit$$$

Selling and administrative activities:

Customer service$$$

Sales order processing

Advertising support

Total selling and administrative activities$

Operating income$$$

Solutions

Expert Solution

Computation of ABC rate
Activity OH Costs(Col 1) No. of activity base(Col 2) Activity Rate(Col 1 / Col 2)
Customer Service $                            30,030                                             210 $                                       143.00 per service request
Sales order processing $                            27,880                                             820 $                                         34.00 per sales orders
Advertising support $                          205,500                                             150 $                                    1,370.00 per ads placed
Total $                          263,410
The Warehouse Kosmo Supply universe
ABC rate Activity Based usage Activity Based usage*ABC rate Activity Based usage Activity Based usage*ABC rate Activity Based usage Activity Based usage*ABC rate
Customer Service $                            143.00 40 $                                         5,720 10 $                                     1,430 160 $                                    22,880
Sales order processing $                              34.00 230 $                                         7,820 100 $                                     3,400 490 $                                    16,660
Advertising support $                         1,370.00 20 $                                       27,400 20 $                                   27,400 110 $                                  150,700
Total Assigned Cost $                                       40,940 $                                   32,230 $                                  190,240
Shrute Inc.
Customer profitability report
For the year ended December 31
The Warehouse Kosmo Supply universe
Revenues $                          476,100 $                                  476,100 $                                     476,100
Cost of goods sold $                          282,900 $                                  282,900 $                                     282,900
Gross Profit $                          193,200 $                                  193,200 $                                     193,200
Selling and administrative activities:
Customer Service $                              5,720 $                                      1,430 $                                       22,880
Sales order processing $                              7,820 $                                      3,400 $                                       16,660
Advertising support $                            27,400 $                                    27,400 $                                     150,700
Total Selling and administrative activities $                            40,940 $                                    32,230 $                                     190,240
Operating Income $                          152,260 $                                  160,970 $                                         2,960

ekkarill92 answered 2 years ago
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